- CFA Exams
- 2021 Level I > Study Session 10. Corporate Finance (1) > Reading 32. Capital Budgeting
- 6. Popularity and Usage of the Capital Budgeting Method
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Subject 6. Popularity and Usage of the Capital Budgeting Method
The usefulness of various capital budgeting methods depends on their specific applications. Although financial textbooks often recommend the use of NPV and IRR methods, other methods are also heavily used by corporations.
Capital budgeting is also relevant to external analysts in estimating the value of stock prices. Theoretically, if a company invests in positive NPV projects, the wealth of its shareholders should increase.
The integrity of a firm's capital budgeting processes can also be used to show how the management pursues its goal of shareholder wealth maximization.
Study notes from a previous year's CFA exam:
6. Popularity and Usage of the Capital Budgeting Method