Reference no: EM132637956

The payback period depicts the duration which is required to recoup the investment and work for the business investments. Within the workplace, there are opportunities that come around to decide the project and the returns which can be retrieved back in the shortest time. The criteria are important criteria which ensure that the positive cash flows are received and diminished over a period of time (Benamraoui, 2017).

Net present value (NPV) is defined to determine the current value which is dependent on the future cash flows. It can be generated for the project which includes capital investments and it can be used to ensure that the capital budgeting establishments are projected to claim the greatest profit for the company. NPV is the term used in the longer-term projects which can be used to multiple cash flows and then generate revenues in the system (Djuhatmoko, 2019).

Question 1: The internal rate of return is a metric used to financially analyze the profitability of potential investments? There are discount rates that make the cash flow analysis an important formula for NPV does. IRR is the annual rate of growth that is expected to generate and except it sets the NPV. IRR is the ideal calculation that is used for analyzing the capital budgeting projects and understands the situation of the potential rates which can be fulfilled in the annual return over time.

The profitability index measures the ratio between the present value of future cash flows and the initial investment. There are different and useful tools which can be used in ranking different projects and they can be used to showcase the value which is been created per unit of investment (Hopkinson, 2017).