Capital budgeting

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Capital budgeting

  1. 1. CAPITAL BUDGETINGPresented by: Nishna Sathyan,K.M
  2. 2. Story of Intel…
  3. 3. Story of Euro Disney…
  4. 4. Capital budgeting???Capital budgeting addresses the issue of strategic longterm investment decisionCapital budgeting can be defined as the process ofanalyzing, evaluating, and deciding whether resourcesshould be allocated to a project or not.
  5. 5. Long term asset…
  6. 6. Why capital budgeting is so important???• Involve massive investment of resource• Are not easily reversible• Have long-term implications for the firm• Involve uncertainty and risk for the firm
  7. 7. Classification of projects• Replacement decision• Expansion decision• Independent project• Mutually exclusive projects
  8. 8. Replacement decisionA decision concerning whether an existing asset shouldreplaced by a newer version of the same machine
  9. 9. Expansion decisionA decision concerning whether the firm should increaseoperations by adding new products, additional machines,and so forth
  10. 10. Independent projectThe acceptance of an independent project does not affectthe acceptance of any other project
  11. 11. Mutually exclusive projectsThe decision to invest in one project affects otherprojects because only one project can be purchased
  12. 12. The capital budgeting processAccording to Quinin G David capital budgeting process includefollowing stepsProject generationProject evaluationproject selectionProject executionFollow up
  13. 13. Techniques of Capital Budgeting Analysis• Payback Period Approach• Discounted Payback Period Approach• Net Present Value Approach• Internal Rate of Return• Profitability Index
  14. 14. Is there any limitation for capitalbudgeting???
  15. 15. Capital budgeting a solid measure for wealthmaximizationConclusion…
  16. 16. References…• Bose, C(2006) “Fundamentals of financial management”. Prentice-Hall of India Private Ltd.• Srivastava, R.M(2000) “Financial Management ”.Pragati prakshanPrivate Ltd.

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