Capital Budgeting is the process of evaluating, checking, and implementing a large-scale project that requires a significant amount of money. Capital budgeting may be required in the acquisition of land and building, purchase of machinery, and marketing a new product of the company. The large-scale money spent in executing these ... Read More

There are many options strategies that a trader can apply while dealing in stock options contracts. One such option strategy is the Calendar Spread where selling an option and buying one takes place at the same time. The option that is sold is usually short term, while the one bought ... Read More

Profitability Index (or PI) is a method to evaluate the profitability of investment projects. It is actually a benefit to cost ratio or the ratio of the present value of cash inflows at the required rate of return to the initial cash outflows of the investment.Like NPV and IRR, PI ... Read More

There are basically six factors that affect the value of an options contract −The value of the underlying assetExercise priceExpiration timeRisk-free rate of interestVolatilityPayments on the underlying and cost to carry onLet us take a look at each of these factors in detail.The Value of the Underlying AssetThe value of ... Read More

Capital Budgeting is a process of evaluating long-term business decisions that need large amounts of capital. It is a way to find a better deal for the growth of the business. Capital budgeting is often related to important capital decisions that impact the bottom-line of a company. It has certain ... Read More

The Black Scholes Method works with three different types assets −The risky assetsThe riskless assets, andThe option of the risky asset whose value has to be found.Depending on the type of assets, there are four categories of assumptions that the Black Scholes method follows, which are −Assumptions about the underlying ... Read More

Mutually exclusive investments are investments that are connected to each other where taking up one negates the use of the other investment. These investments usually serve different purposes but when one of them is undertaken, the other cannot be done. There are many examples of mutually exclusive investments, but they ... Read More

Collar Option StrategyA collar option strategy is created to diminish both positive and negative returns of the underlying assets. It can hedge the options against the volatility of the market and limit the return of a portfolio within a specified range.To do this, a protective put and a covered call ... Read More

The following three important steps are involved in evaluating an investment decision −Estimation of Cash FlowEstimation of Internal Rate of Return (the Opportunity Cost of Capital)Application of a decision rule for making the choiceLet us take a closer look at each of these steps.Estimation of Cash FlowDiscounted Cash Flow (DCF) ... Read More

Net Present Value or NPV is a classic economic method of evaluation of investment proposals. It is a Discounted Cash Flow (DCF) technique that considers the time value of money. NPV correctly postulates the cash flows that arise at different time periods that are comparable in terms of their present ... Read More