Non discounting cash flow technique

A short presentation on cash flow techniques

1. Non-discounting cash flow technique
Presented by:
Nidhi panwar
M.B.A 2
nd
semester
April 19, 2017
Presented to:
Dr. Monika kashyap

2. What is capital budgeting?
Capital budgeting is the planning or we can say
it’s the process used by a firm’s to their long term
Investments. Such as new machinery, new plants,
new project, R & D projects.
Land is a good example of a long term
Investment.

3. Slide contents
Capital budgeting
Non discounting cash flow techniques
Pay back periods
Discounted payback periods
Accounting rate of return methods
Required rate of return
Conclusion

5. Methods of non-discounting techniques

6. The payback period
Meaning: number of year needed to recover the
initial cash outlay of a capital budgeting project.
Its does not take the effect of time value of money. The
selection of the project is based on the earning capacity
of the project. Its one of the simplest investment
techniques.
Decision rule: Accept the project only if its payback
period is less then the target payback period. If the PBP
is greater then the targeted payback period the project
will rejected.

7. Discounted payback periods
Meaning:
Discounted payback periods used to evaluate the time
period of a project where project gives enough profits
to recoup the initial investment. Its uses discounted free
cash flows rather than the actual non discounted cash
flow.
Decision rule: Discounted payback period is less then
target period accept the project.

8. Accounting rate of the return methods
Meaning:
This method helps to overcome the disadvantage of payback period
method. The rate of return is expressed as a % of the earning of the
investment in a particular project.
ARR= Average annual accounting profit / Initial Investment
For example: If the ARR is 7% then its means that the project is
expected to earn 7% out of each $ invested.

continue……

9. Decision rule:
If ARR is equal or greater then the required rate of
return project will acceptable.
The higher the ARR more attractive to investment.
Required rate of return: A minimum acceptable rate of
return at a given level of risk.

Thank you…….

10. Decision rule:
If ARR is equal or greater then the required rate of
return project will acceptable.
The higher the ARR more attractive to investment.
Required rate of return: A minimum acceptable rate of
return at a given level of risk.

Thank you…….