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Capital stands for the operating assets and resources required in the process of production. Budget means a plan that shows projected cash flow in detail during a period.<br>https://www.myassignmentservices.com/capital-budgeting-assignment-help.html
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CAPITAL BUDGETING: FUNDAMENTALS What You need to know : By My Assignment Services
What is capital budgeting? Capital stands for the operating assets and resources required in the process of production. Budget means a plan that shows projected cash flow in detail during a period. Hence, capital budgeting is the process of studying and analyzing projects and identifying and deciding which project needs to be included in the capital budget.
Importance of capital budgeting Capital budgeting is important for a project for various reasons, such as. Risk Growth Long term implications Large amount Complexities Irreversibility
Different stages of capital budgeting Capital budgeting is done on different levels. These levels are noted below. Planning Analysis Technical analysis Market analysis Financial analysis Ecological analysis Economic analysis Selection Implementation And Review
Techniques of capital budgeting There are two major capital budgeting techniques. Non-discounting techniques - This technique ignores the time value of money - Accounting rate of return or Average rate of return (ARR) Payback period (PBP) Discounting Techniques - This technique considers the time value of money. Net present value (NPV) Profit index or Benefit-cost ratio (BCR) Internal Rate of Return (IRR)
Nature of capital budgeting The nature of capital budgeting is noted below. The decisions of capital budgeting have a long-term impact on the stability, growth and success of the business. Huge investment of funds is required in capital budgeting. The decisions of capital budgeting are not easy to revise because of loss that can occur on investment. From future cash flow concerns the decisions of capital budgeting are highly complex.
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