Process of allocating scarce capital

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The process of allocating or budgeting capital is usually more involved than just deciding whether to buy a particular fixed asset to create additional value. In fact, we frequently face broader issues like whether we should launch a new product or enter a new market. Decisions such as these determine the nature of a firm's operations and products for years to come, primarily because fixed assets are long-lived and not easily reversed once they are made, the process of allocating scarce capital in long-lived assets must be carefully evaluated. Briefly discuss the following four methods to decide on capital budgeting decisions:

- net present value (NPV)

- profitability Index (PI)

- Internal Rate of Return (IRR)

- Pay Back Period (PBP)

Reference no: EM133062468

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