Technological Institute of the Philippines

363 Pascual Casal St, Quiapo, Manila, 1001 Metro

Manila

CAPITAL BUDGETING
FIN 002A-ACTCY21S2 - Financial Management

Submitted by:
Adliana Colin A. Amistoso
Pamela Jean M. Bonifacio
ACTCY21S2

Submitted to:
Mr. Heherson M. Martinez, CPA
 Technological Institute of the Philippines
363 Pascual Casal St, Quiapo, Manila, 1001 Metro
Manila
 Technological Institute of the Philippines
363 Pascual Casal St, Quiapo, Manila, 1001 Metro
Manila

Capital budgeting is use by companies to evaluate investments. They also use this
method to analyze the inflow and outflows to know whether they meet the
expected return.
While the operational budget is concerned with the twelve months of the fiscal
year, capital budgeting is concerned with the planning process for determining an
organization's long-term investment in assets with a useful life of more than one
year. Because it influences operational expenditures through depreciation expense,
affects cash flow predictions, and necessitates financing choices, the capital budget
is included in the operating budget process.
Long-term investments or also known as Capital investments, is in which the assets
involved have a useful life of several years are known as capital investments.
Capital investments include things like building a new production facility and
purchasing machinery and equipment. Capital budgeting is a way of assessing a
capital investment's financial sustainability over its lifetime.
Capital budgeting, unlike some other kinds of investment analysis, focuses on cash
flows rather than profits. Rather than accounting revenues and costs flowing from
the investment, capital budgeting entails tracking financial inflows and outflows.
Non-expense items like as loan principal payments, for example, are accounted for
in capital planning since they are cash flow transactions. Non-cash costs like as
depreciation, on the other hand, are excluded from capital planning (save to the
extent that they affect tax calculations for “after tax” cash flows) since they are not
cash transactions.
 Technological Institute of the Philippines
363 Pascual Casal St, Quiapo, Manila, 1001 Metro
Manila

Profitability index - in the year 2020, we get the PI of 0.98 meaning the project
destroys value and the company should not proceed with the project.
The simple rate of return is used for capital budgeting analysis, to determine
whether a business should invest in a fixed asset and any incremental change in
working capital associated with the asset. In the year 2020, we get (0.02) of Simple
rate return meaning negative return on investment means that investment
properties are actually losing money.

KEY TAKEAWAYS
✓ Capital Budgeting is finding out whether or not to invest money in project.

✓ Capital Budgeting Techniques uses these criteria to make decisions:

(1) NPV - what is the value of the investment.
(2) IRR - % of return of investment
(3) PI - profit ratio for every money spent.
(4) Payback Period - time to recover your investment.

(1) Is it worth it to put money or "capital" in this project?

(2) is it worth it to use money to buy this machine?
(3) is it worth it to put money in this business?
-In our chosen company, it is not worth for the company to proceed with the
project. - in the year 2020, we get the PI of 0.98 meaning the project destroys
value and the company should not proceed with the project.
 Technological Institute of the Philippines
363 Pascual Casal St, Quiapo, Manila, 1001 Metro
Manila

“I accept responsibility for my role in ensuring the integrity of the work

submitted by the group in which I participated.”