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Some techniques that we can use to evaluate a capital project would be using the payback period, Net present value and evaluation of the internal rate of return.

The payback period is the length of time that it takes to recover the initial cost. The payback period is acceptable if the investment pays for itself within a specified number of years. We can find the payback period by finding how many years we need and where the payback occurs and taking what amount we have left divided by the amount ending in that last year that the payback occurs. If the payback period falls within the specified number of years than we will accept the investment.

The Net present value is the difference between the investments market value and the actual cost of the investment. We are looking for how much value is added by acquiring the investment. We would feel more secure taking on an investment that had positive value.

The internal rate of return is used to estimate the profitability of potential investments. The internal rate of return is adiscount ratethat makes thenet present value(NPV) of all cash flows equal to zero in a discounted cash flow analysis (Hayes, 2020).

I think that all the techniques would be valuable. They all give information that we need in order to make a solid decision about an investment. I would also use them all when dealing with capital projects. They give an understanding where this investment may take us, into the positive of negative. We would want to avoid negative investments at all costs. The riskier the investment, the more chance that the investment will fail. Having an understanding where this investment falls within these techniques allows us to make a more concrete decision.

Reference:

Hayes, Adam. "Internal Rate of Return (IRR)."Investopedia, Investopedia, 15 Sept. 2020, www.investopedia.com/terms/i/irr.asp.