“how do we accept or reject a project based on financial factors?” What is the role...

“how do we accept or reject a project based on financial factors?”
What is the role of depreciation in giving an answer to the above question? Please type you answer in less than 500 words.

related to class - IE 370 ENGR. ECONOMIC ANALYSIS

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We will accept or reject a project which will be based upon the financial factor by analysing the return which are generated by the project and comparing with the cost of the capital.

We will be trying to find out the cash flows associated with the project and we will try to discount the cash flows that the present value in order to find out the net present value of those cash amounts and we will be trying to adopt the various kinds of capital budgeting decisions like net present value or internal rate of return in order to find out whether the project has adequate criteria to get accepted or not so I will be trying to to compare the rate of return by these projects with the cost of capital related to this project and then if there is a differential on the positive side then it will mean that these projects are going to help the company in growing in the long run so I will be selecting those projects because they will be having positive net present value and they will be having a higher rate of return than the cost of capital.

Role of depreciation will also be ascertained in finding out the cash flows because the cash flows are never considering depreciation in overall criteria but when we will be selecting the project based upon their features we will be trying to discount the depreciation also because it is also a cost related to those assets but this cost should not be treated with the utmost priority because this is not a cash outflow related to those projects and it is also tax exempted in nature so I will be trying to factor in accordingly and then accept these products according to tthe rate of return after comparing them to the cost of capital

jeff jeffy answered 1 year ago

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