Make your own free website on


Classification of Investment Projects

Capital Budgeting
Topic Outline
Classification of Investment Projects
Business Proposals
Decision Criteria
Independent and Mutually Exclusive Programs
About the Webmasters
Photo Gallery
Contact the Webmasters...


Type of Benefit Expected

  • Cost Reduction
  • Expansion Project
  • New Product Introduction
  • Mandated Projects

By Degree of Dependence

  • Independent Projects
  • Mutually Exclusive Projects
  • Contingent Projects

Non discounted Cash Flow Criteria

Payback Period

  • The payback period is the number of years needed

to recover the initial cash outlay. This criterion

measures how quickly the project will return it's

original investment

  • The accept - reject criterion is whether or not the

project's payback period is less than or equal to

the firm' s maximum desired payback period.


Year                        After-Tax Cash Flow

  1                                   $2,000

  2                                   $4,000

  3                                   $3,000

  4                                   $3,000

  5                                   $1,000

  • If the initial cash outlay was $10,000, and the firm's

maximum desired payback period is 3 years. The

payback period for this project will be 3.3333 years,

and the firm will reject the project as 3.333333 is

greater than 3 it's maximum acceptable payback


  • The Payback Period does not take into account the time

value of money

  • The Payback Period ignores any cash-flows that occur

after the payback period