Week 4 Preparation 1. Describe, IN YOUR OWNWORDS (iyow), in one sentence each of the following; NPV Payback Period Internal Rate of return 2. What one thing are the three things above usedfor? 3....

1)
The Payback Period technique refers to the time period that is required for the cash inflows to
repay the amount of initial investment. It is the time period that is required for the cash inflows
to fully recover the cash outflows during the life of the project. Normally, the lower the payback
period the better is for the project as the organization will be able recover its investment earlier.
The time value of money is not taken into consideration.
The Net Present Value technique is a discounted capital budgeting technique that takes into
consideration the time value of money. The net present value can be defined as the difference
between the present value of cash inflows and cash outflows. Every organization expects to earn
revenues from the projects every year. It is very necessary for the management that while
evaluating the project, the cash flows of the future years be discounted at the discounting rate to
arrive at the present value of the future cash flows. Since, the future cash flows may be uncertain
and the time value of money will decline the value in today’s terms it becomes necessary to
discount the cash flows. When the discounted cash flows are compared with the present value of...