Final answer:
The five different techniques for evaluating capital budgeting projects are: payback period, net present value (NPV), internal rate of return (IRR), profitability index, and accounting rate of return (ARR).
Step-by-step explanation:
The five different techniques for evaluating capital budgeting projects are:
Payback period: This is the length of time it takes to recover the initial investment in a project. It focuses on the cash flows and how quickly the investment can be recouped.
Net present value (NPV): This technique calculates the present value of the project's cash flows by discounting them to account for the time value of money. A project with a positive NPV is considered favorable.
Internal rate of return (IRR): The IRR is the discount rate that makes the NPV of a project equal to zero. It represents the project's profitability and is compared to the required rate of return to determine if it is a good investment.
Profitability index: Also known as the benefit-cost ratio, this technique evaluates the ratio between the present value of cash inflows and the present value of cash outflows. A ratio greater than 1 indicates a favorable project.
Accounting rate of return (ARR): The ARR calculates the average annual profit of an investment as a percentage of the initial investment. It focuses on accounting measures of profitability.