Identification of potential investment opportunities
The capital budgeting process begins with the identification of potential investment opportunities. Typically the planning body develops the estimates of future sales, which serves as the basis for setting production target. This information in turn is helpful in identifying required investments in plant and equipment.
For imaginative identification of investment ideas it is helpful to
i) Monitor external environment regularly to scout investment opportunities,
ii) Formulate a well defined corporate strategy based on a through analysis of strengths, weaknesses, opportunities and threats,
iii) Share corporate strategy and prospective with person who are involved in the process of capital budgeting and,
iv) Motivate employees to make suggestions.
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