An Introductory to basic in capital budgeting

1. Chapter 10: Capital Budgeting
Theddy B.Feonale (392047)
Tegar Satya Putra (392046)

3. Capital Budget
List of planned investment
in long term assets
Capital Budgeting :
Whole processes of
analyzing projects and
deciding which ones to
be accepted.
Long Term Assets
Projected
Expenditure

18. Formula :

20. DISCOUNTED PAYBACK

22.  Three other issues in capital budgeting are discussed in
this section:
(1) how to deal with mutually exclusive projects whose lives
differ;
(2) the potential advantage of terminating a project before
the end of its physical life; and
(3) the optimal capital budget when the cost of capital rises
as the size of the capital budget increases.

26.  optimal capital budget is defined as the set of projects
that maximizes the value of the firm.
 Two problems arise in real world:
(1)The cost of capital might increase as the size of the
capital budget increases, making it hard to know the
proper discount rate to use when evaluating projects;
(2) sometimes firms set an upper limit on the size of their
capital budgets, which is also known as capital rationing

28.  Why capital rationing is quite common:
1. Reluctance to issue new stock
2. Constraints on nonmonetary resources
3. Controlling estimation bias