You are here

Alternative capital budgeting methods

29 April, 2015 - 15:03
  • Payback period: which measures the time required for the cash inflows to equal the original outlay. It measures risk, not return.
  • Cost-benefit analysis: which includes issues other than cash, such as time savings.
  • Real option method: which attempts to value managerial flexibility that is assumed away in NPV.
  • Internal rate of return: which calculates the rate of return of a project while disregarding the absolute amount of money to be gained.
  • Modified Internal Rate of Return|Modified internal rate of return (MIRR): similar to IRR, but it makes explicit assumptions about the reinvestment of the cash flows. Sometimes it is called Growth Rate of Return.
  • Accounting rate of return (ARR): a ratio similar to IRR and MIRR