Capital Budgeting Techniques for Auditizz Electronics

Running Head: AUDITIZZ ELECTRONICS 1
AUDITIZZ ELECTRONICS

AUDITIZZ ELECTRONICS 2
Table of Contents
Overview.....................................................................................................................................................3
Question 1...................................................................................................................................................3
Question 2...................................................................................................................................................3
Question 3...................................................................................................................................................4
Question 4...................................................................................................................................................5
Question 5...................................................................................................................................................6
Question 6...................................................................................................................................................6
Question 7...................................................................................................................................................7
References...................................................................................................................................................8

AUDITIZZ ELECTRONICS 3
Overview
Capital budgeting techniques are one of the most important and the crucial concepts in the
history of the finance. The methods are used to measure the performance of the projects that are
being considered by the company. In this report the capital budgeting methods that are used are
the Net present value, internal rate of return, accounting rate of return and the sensitivity
analysis. All these categories have been considered in order to find out whether the project
considered by the company is feasible or not (Leyman and Vanhoucke 2017).
Question 1
A payback period for the purpose of the discounting of the capital is not unequivocally
considering the time estimation of cash. At the end of the day, every dollar earned later on is
accepted to have a similar incentive as every dollar that was contributed numerous years sooner.
This strategy is one of the methods which is used in the process of the capital; budgeting. The
non-discounted payback period of Auditizz Electronics is 3.24 years which means the company
is able to recover the cost within the 3.24 years against the total project valuation of 4 years
(Adusumilli, Davis and Fromme, 2016).
Question 2
Accounting Rate of Return (ARR) is the rate at which the normal costs are partitioned by the
yearly rate. The ARR is nothing but a method of finding out the capital choices. The
organizations adopt this method in order to find out the areas in which they can settle with the
respective project. The Accounting rate of return of the Auditizz Electronics is 38% and this
indicates that the way the company is growing in terms of the ARR is sound as it determines that