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

There are several methods used for assessing project sustainability in capital budgeting. Some of the commonly used methods include:

1. Net Present Value (NPV): This method calculates the present value of all cash inflows and outflows associated with a project, taking into account the time value of money. A positive NPV indicates that the project is financially viable and sustainable.

2. Internal Rate of Return (IRR): The IRR is the discount rate at which the present value of cash inflows equals the present value of cash outflows. It represents the rate of return that the project is expected to generate. A higher IRR indicates a more sustainable project.

3. Payback Period: This method calculates the time required for the project to recover its initial investment. A shorter payback period indicates a more sustainable project, as it implies a quicker return on investment.

4. Profitability Index (PI): The PI is calculated by dividing the present value of cash inflows by the present value of cash outflows. A PI greater than 1 indicates a financially sustainable project.

5. Accounting Rate of Return (ARR): The ARR calculates the average annual profit generated by the project as a percentage of the initial investment. A higher ARR indicates a more sustainable project.

6. Sensitivity Analysis: This method assesses the impact of changes in key variables, such as sales volume or cost, on the project's financial viability. It helps identify potential risks and uncertainties that may affect the project's sustainability.

7. Scenario Analysis: This method involves analyzing the project's financial performance under different scenarios or assumptions. It helps evaluate the project's sustainability under various market conditions or external factors.

It is important to note that these methods should be used in combination and not in isolation to assess project sustainability effectively.