Ch 3 · Capital Budgeting (Investment Decisions)

📘 Core concepts

1. 1Long-term investment decisions involving capital expenditure.
2. 2Techniques: Payback, ARR (traditional); NPV, IRR, PI, Discounted Payback (DCF).
3. 3NPV decision rule: accept if NPV > 0; for mutually exclusive — choose highest NPV.
4. 4IRR: discount rate at which NPV = 0; may have multiple IRRs with non-conventional cash flows.
5. 5Risk analysis: sensitivity, scenario, Monte Carlo, certainty equivalent, risk-adjusted discount rate.