CAPITAL BUDGETINGINTRODUCTION:Capital Budgeting is the art of finding assets that are worth more than they costto achieve ...
Upcoming SlideShare
Loading in …5
×

Capital budgeting

203 views

Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

Capital budgeting

  1. 1. CAPITAL BUDGETINGINTRODUCTION:Capital Budgeting is the art of finding assets that are worth more than they costto achieve a predetermined goal i.e., ‘optimizing the wealth of a businessenterprise’. Capital investment involves a cash outflow in the immediate future inanticipation of returns at a future date. A capital investment decision involves alargely irreversible commitment of resources that is generally subject tosignificant degree of risk. Such decisions have for reading efforts on anenterprise’s profitability and flexibility over the long-term. Acceptance of non-viable proposals acts as a drag on the resources of an enterprise and mayeventually lead to bankruptcy. For making a rational decision regarding the capitalinvestment proposals, the decision maker needs some techniques to convert thecash outflows and cash inflows of a project into meaningful yardsticks which canmeasure the economic worthiness of projects.CAPITAL BUDGETING = Investing in Long-term AssetsDefinition: a. Capital: Fixed assets used in production b. Budget: Plan of in- and outflows during some period c. Capital Budget: A list of planned investment (i.e., expenditures on fixed assets) outlays for different projects. d. Capital Budgeting: Process of selecting viable investment projects In this course, investments (long term) are needed in order to: Expand in existing markets. Enter new markets. Replace existing capital assets

×