Capital Budgeting refers to the process of evaluating and selecting long-term capital expenditures involving fixed assets. It requires procuring long-term funds through financing sources like equity, debt, or deposits. These expenditures are heavy and significantly impact future cost structures. There is typically a high time lag between investment and return since fixed assets like land, buildings, and plant equipment take a long time to acquire and develop. Capital budgeting decisions carry considerable risk since wrong choices could lead to obsolete assets that reduce future prospects or remain unutilized if not properly implemented. The investments determine the future direction of the business toward its goals.
Capital Budgeting refers to the process of evaluating and selecting long-term capital expenditures involving fixed assets. It requires procuring long-term funds through financing sources like equity, debt, or deposits. These expenditures are heavy and significantly impact future cost structures. There is typically a high time lag between investment and return since fixed assets like land, buildings, and plant equipment take a long time to acquire and develop. Capital budgeting decisions carry considerable risk since wrong choices could lead to obsolete assets that reduce future prospects or remain unutilized if not properly implemented. The investments determine the future direction of the business toward its goals.
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Capital Budgeting refers to the process of evaluating and selecting long-term capital expenditures involving fixed assets. It requires procuring long-term funds through financing sources like equity, debt, or deposits. These expenditures are heavy and significantly impact future cost structures. There is typically a high time lag between investment and return since fixed assets like land, buildings, and plant equipment take a long time to acquire and develop. Capital budgeting decisions carry considerable risk since wrong choices could lead to obsolete assets that reduce future prospects or remain unutilized if not properly implemented. The investments determine the future direction of the business toward its goals.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
expenditure decision concerning acquisition, extension, expansion and development of fixed assets. Capital Budget in this way refers to acquisition and development of fixed assets in operation. Capital Budgeting may thus be defined as the entire process of generating , evaluating, selecting and following up capital expenditure alternatives. Issues/Features of Capital Budgeting • Capital Budgeting is concerned with long term funds: Capital Budgeting involves procurement of long term funds through issue of shares & debentures, acceptance of public deposits & loans from FI’s, banks etc. Long term funds are used in the acquisition & development of fixed assets. • Involves heavy expenditure: The cost of acquiring & developing fixed assets is very heavy. It can’t be met by short term current resources. It requires that funds should be generated for long period. Contd. • Affecting cost structure: The heavy expenditures incurred in the acquisition of fixed assets will definitely affect the future cost structure of the business. Cost of acquiring funds Cost of production/ investment of enterprise. • High time lag between investment & return: The process of investment may continue for longer period, just as acquisition & development of land, construction of building & purchase of plant from abroad. The fruits of these long term investments will be available, if these assets are properly utilised. Capital budgeting is therefore, an investment with patience. Contd. • Involves Considerable risk: Capital budgeting is long term investment & as such it carries long term uncertainties with it. Wise investment decision pays rich dividend but any wrong decision such as acquisition of obsolete, out of date machines & equipments affects future prospects adversely. In case, the assets acquired remain unutilised, it is a complete wastage. As such capital budgeting is a risky investment. • Determines the future course of action: Long term investment are made with long term objectives of the business. Contd. Investments are made directed towards the cherished goal of the enterprise. The trend of long term investment of the company indicates its future course of action.