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Capital Budgeting

Capital Budgeting

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Published by atharpimt
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Categories:Topics, Art & Design
Published by: atharpimt on Oct 18, 2010
Copyright:Attribution Non-commercial

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11/04/2011

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Capital budgeting
It is a decision involving selection of capitalexpenditure proposals.The life of the project is atleast one year andusually much longer.Examples include decision to purchase newplant and equipmentIntroduce new product in the marketEssentially it must be determined whether thefuture benefits are sufficiently large enough to justify the current outlays.
 
 
Capital budgeting
A capital budgeting decision is one that involves theallocation of funds to projects that will have a life of atleast one year and usually much longer.Examples would include the development of a major new product, a plant site location, or an equipmentreplacement decision.Capital budgeting decision must be approached withgreat care because of the following reasons:1.Long time period: consequences of capital expenditureextends into the future and will have to be endured for a longer period whether the decision is good or bad.
 
 
2.Substantial expenditure: it involves large sumsof money and necessitates a careful planningand evaluation.3.Irreversibility: the decisions are quite oftenirreversible, because there is little or nosecond hand market for may types of capitalgoods.4.Over and under capacity: an erroneousforecast of asset requirements can result inserious consequences. First the equipmentmust be modern and secondly it has to be of adequate capacity.

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