From This topic, When making some major decisions in capital budgeting what is the most important analysis you should complete? Explain.

"Capital budgeting refers to a process which business utilize in determining which proposed projects or fixed asset purchases should be accepted and which ones should be declined. It is the process which businesses use in identifying the capital projects that will create the highest value or return as compared to the funds that are invested in the projects.

Net Present Value (NPV) method of capital budgeting entails the identification of net change in the cash flows from a project of fixed asset purchase and then discounting them using a given required rate of return to their respective present values. The projects are then compared and those with the highest net present values that are positive are selected.

Payback period method of capital budgeting entails the determination of the period needed to generate enough cash flow from the project so as to pay for initial investment or outlay on it.

Net Present Value (NPV) is a better option than payback method of capital budgeting, the reason are as follows, NPV and payback methods are among the solutions to the evaluation of the project value i.e. NPV and payback period are all used in evaluating projects for investment or capital spending by businesses. NPV is computed in currency terms while the payback method is computed in terms of the period required for a return from the investment to repay total initial investment. Payback period, unlike the NPV method, does not properly take into account the time value of money, risk, inflation, financing, and other pertinent considerations. The NPV method takes into the consideration time value of money in addition to providing the direct measure of dollar benefit of the projects on the basis of present. The payback period, unlike NPV, ignores any benefits which occur after payback period. Also, it doesn`t measure the total incomes. The NPV method measures total dollar value associated with the project benefits."