Manoj is a renowned businessman involved in the export business of leather goods. As a responsible citizen, he chooses to use jute bags for packaging instead of plastic bags. Moreover, on the advice of his friends, he decides to use jute for manufacturing aesthetic handicrafts, keeping in view the growing demand for natural goods. To implement his plan, after conducting a feasibility study, he decides to set up a separate manufacturing unit for producing varied jute products. In the context of the above case: a) Identify the type of investment decision taken by Manoj by deciding to set up a separate manufacturing unit for producing jute products. b) State any two factors that he is likely to consider while taking this decision.
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A) Capital budgeting decision has been taken by Manoj.
B) The factors affecting Capital Budgeting Decision are as follows:
Cash inflows: The expected cash inflows from the proposed projects should be carefully analyzed and the project indicating higher cash inflows should be selected.
Rate of return: The expected rate of return should be carefully studied in terms of risk associated from the proposed project. If two projects are likely to offer the same rate of return, the project involving lesser risk should be selected.
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