Once the stream of costs and benefits for a project is defined in
the form of cash flows (or accounting figures as is sometimes
done), the attention shifts to the issue of project
worthwhileness. A wide variety of appraisal criteria (or
evaluation methods) have been suggested to judge the worth
whileness of capital projects. More than thirty criteria have been
proposed, in the extensive literature on this subject, to guide
investment decision making. Some are general and applicable to
a wide range of investments; others are specialized and suitable
for certain types of investments or industries. The more
important and popular of these can be classified into two broad
categories as follows:
Discounting Criteria Non-discounting Criteria
Net present value
Urgency
Benefit-cost ratio
Payback period
Internal Rate of return
Accounting rate of return
This chapter discusses these criteria in some detail. In addition,
it looks at how investment appraisal is done in practice, both in
India as well as abroad