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Capital Budgeting of Canteen Wala

Capital Budgeting of Canteen Wala



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Published by Amit

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Categories:Types, School Work
Published by: Amit on Apr 12, 2009
Copyright:Attribution Non-commercial


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An efficient allocation of capital is the most important finance in the moderntimes. It involves decisions to commit the firms funds to the long term assetscapital budgeting decisions or investment decisions are of considerableimportance to the firm since they tend to determine its value by influencingits growth profitability and risk.Capital Budgeting refers to planning the deployment of available capital for the purpose of maximizing the long term profitability of the firm.It is the firm’s decision to invest its current funds most efficiently in the longterm activities in anticipation of flow of future benefits over a series of years.
Capital Budgeting involves :
Search of new and more profitable investment proposals
The making of an economic analysis to determine the profit potentialof each investment proposals.
Difficulties of investment decisions
It involves complex investment decisions as they are an assessment of futureevents, which are difficult to predict.
Long term effect on profitability (Growth)
A firm’s decision to invest in long term assets has a decisive influence onthe rate & the direction of its growth.
Irreversible nature
Most investment decisions are irreversible. It is difficult to find a market for capital item once they have been acquired.
Long term commitment of funds (Risk)
A long term commitment of fund may also change the risk complexity of thefirm. If the adoption of an investment increases average gain but causesfrequent fluctuation in its earnings, the firm would become more risky.
Large investment (Funding)
Investment decisions generally involve large amount of funds, which makeit imperative for the firm to plan its investment programs very carefully andmake an advance arrangement for procuring finances internally or externally.
There are many ways to classify investments. One classification is asfollows: 
The Expansion of Existing Business
A company may add capacity to its existing product lines to expand existingoperations. For example Gujrat State Fertilizer Company may increase its plant capacity to manufacture more urea it is an example of relateddiversification.

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