Question

• Think about some of the capital budgeting techniques you might use for some upcoming projects.- I am curious to know how to apply in my field of Restaurant Management how can I apply them.
• Discuss at least 2 capital budgeting techniques and how your company can benefit from the use of these tools.

Answer 1

There are various capital budgeting techniques , we have explained 2 of them here:

1. Payback Period: Payback period is the period in which original investment will come back to the investor. If the investor is sensitive to time period in which he wishes to get the investment back, such method is useful. However, It does not consider time value of money and also does not consider the returns post the payback period.

2. Discounter Payback period tries to solve 1 of the above disadvantages of payback period. It considers time value of money. That means the period in which original investment will be received back by the investor .However, problem regarding the return post payback period is still unsolved.

3. NPV tries to consider all the disadvantages above. NPV is the profitability of the project in the present value terms. NPV is the profitability of the project. It is the difference between present value of cash inflow - capital outlay. i.e NPV = PVCI- Capital Outlay. Cashflows are discounted at present value using the discount factor. NPV is consider one of the best methods to take a capital budgeting decisions.

All the 3 methods can be applied to field of Restuarant Management.