What is Capital Budgeting?


0

-Managers must make decisions on investment involving how much to invest, what capital to be purchased, how to finance the investment etc.

Advertisement

-Investment is simply an addition to the firm’s stock of resources, generally, involving the purchase of capital equipment or land.

-Investment decision is based on marginal analysis i.e. marginal benefits and marginal costs.

 

Capital Budgeting

-Capital budgeting is simply investment analysis, that is, the process of planning for the purchases of assets whose returns (cashflows) are expected to continue beyond one year.                  -What makes capital budgeting decisions; the managers of a firm are committing the firm’s resources to the expansion of its productive capacity, an improvement in its cost efficiency, or a diversification in its asset base.

Each of these decisions has important implications for the future cash flow the firm can be expected to generate and the risk of those cash flows.

– Capital expenditures are a bridge between the short-term price and output determination decisions facing managers daily and the longer term strategic decisions that wealth maximising managers must make to remain competitive.

Public sector managers use the techniques of cost-benefit analysis and cost-effectiveness analysis when analysing many long term resource-allocation decisions.

– Capital budgeting is also defined as the process of planning for and evaluating capital expenditures.

 

 

Advertisement
The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

Like it? Share with your friends!

0
BMS Team

We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

0 Comments

Ask Us On WhatsApp
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube, Vimeo or Vine Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format