Capital budgeting and methods of measuring and comparing investment opportunities
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Capital budgeting is the process of determining whether or not an investment is worthwhile. Often companies will have several opportunities and must measure each one's potential in order to make a comparison and choose just one or a few. For example, a company might be trying to determine whether to buy new equipment to expand production capacity on an existing product, or to invest in research and development for a new product. The three main methods of taking this measurement are Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period.
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