A STUDY OF CAPITAL BUDGETING TECHNIQUE IN A NEW

PROJECT

This rough draft is submitted in the partial fulfilment of project in Financial Management.

Submitted to: Submitted by:

Mr Ashok Kumar Sharma Aarya Gurjar,
(2801)
B.B.A.,LL.B (Hons.)

February,2023
Chanakya National Law University, Patna

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 INTRODUCTION

The basic objective of financial management is the maximization of the shareholders’ wealth
by focusing on three decisions which are capital budgeting decisions, capital structure
decision and dividend decision. Most of the scholar and practitioner opine that although three
decisions are important, firm success and survival ultimately depend on a right investment
decision because a good investment decision remains good business even though bad finance
taken; on the contrary, a bad investment decision will be a wrong decision even with best
finance policy. A sound capital budgeting decision is very critical for a firm because it is
aligned with the firm’s primary objective (wealth maximization), and it requires a substantial
amount of resource and long-term commitment. Once the decision has been made, the
process cannot be manipulated without incurring losses. Capital budgeting is a major terrain
of the sphere of financial management. Capital budgeting is related activities, it is not a
standalone single activity; rather it is defined as a process called “capital budgeting process.”
Capital budgeting is extremely important for capital investment decisions owing to its nature
of capital budgeting process. Capital budgeting is thus defined as “the process of evaluating
and selecting long term investment consistent with the firm owners’ goal of wealth
maximization”.1

1
Md. Abdur Rouf, “A study on capital budgeting practices of some selected companies in Bangladesh”,

Emerald Insight, 5th April 2021, at < https://www.emerald.com/insight/content/doi/10.1108/PRR-10-2020-

0035/full/html#abstract> , last accessed on January 31 2023

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LITERATURE REVIEW

In the book “Financial Management”, Sawalia Bihari Verma explains about the process,
importance and types of Capital Budgeting technique.

RESEARCH OBJECTIVES

o To understand the process of Capital Budgeting.

o To understand the role of capital budgeting in a new project.

RESEARCH QUESTIONS

1. What is the process of Capital Budgeting?

2. What is the application of Capital Budgeting technique in a project?

HYPOTHESIS

Capital investment decisions

are vitally important because
they involve commitments
of large sums of money that
can affect the entire future of
the business.

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Capital investment decisions
are vitally important because
they involve commitments
of large sums of money that
can affect the entire future of
the business.
Capital investment decisions
are vitally important because
they involve commitments
of large sums of money that
can affect the entire future of
the business.
Capital Investment Decisions are vitally important because they involve commitments of
large sums of money that can affect the entire future of the business.

SCOPE AND LIMITATIONS OF THE STUDY

The scope of research is to study the about the various concepts of capital budgeting
technique. The limitation of the research is that the researcher will be studying a hypothetical
example of a single project.

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RESEARCH METHODOLOGY

The researcher will be relying on Doctrinal method of research to complete the project. These
include various primary and secondary sources of literature and insights.

MODE OF CITATION

The mode of citation used is Bluebook 20th Edition.

TENTATIVE CHAPTERISATION

 Introduction
 Capital Budgeting process
 Importance of Capital Budgeting Technique
 Types of Capital Budgeting Techniques
 Study of capital budgeting technique of a project
 Conclusion
 Suggestions
 Bibliography