What are the different methods used for assessing project liquidity in capital budgeting?

The different methods used for assessing project liquidity in capital budgeting include:

1. Payback Period: This method calculates the time required for a project to generate enough cash flows to recover the initial investment. It focuses on the time it takes to recoup the investment and does not consider cash flows beyond the payback period.

2. Net Present Value (NPV): NPV assesses the profitability of a project by discounting all future cash flows to their present value and subtracting the initial investment. A positive NPV indicates that the project is expected to generate more cash inflows than the initial investment, making it financially viable.

3. Internal Rate of Return (IRR): IRR is the discount rate that makes the NPV of a project equal to zero. It represents the project's rate of return and is used to compare different investment opportunities. A higher IRR indicates a more attractive project.

4. Profitability Index (PI): PI is the ratio of the present value of future cash flows to the initial investment. It measures the value created per unit of investment. A PI greater than 1 indicates a financially viable project.

5. Discounted Payback Period: Similar to the payback period, this method considers the time required to recover the initial investment. However, it discounts future cash flows to their present value before calculating the payback period.

These methods help assess project liquidity by considering the timing and magnitude of cash flows, the profitability of the project, and the value created relative to the investment.