☞ write a essay on capital budgeting minimum 500 words ...
Answers
Explanation:
The budget provides a guidance as to the amount of capital that may be needed for procurement of capital assets during the budget period. ... The capital budgeting decision, therefore, involves a current outlay or series of outlays of cash resources in return for an anticipated flow of future benefits.
Answer:
An organization’s success is largely a reflection of the profit earned to its shareholders or its owners. This includes different managerial activities that are involved in the planning and regulating the firm’s financial resources. Financial management is concerned with the decisions involving the financing, dividend and investment. There are many objectives or goals that a firm strives. Increasing the market value of the firm to its shareholders and the owners is the most widely accepted objective for the owners.
This phenomenon is termed as shareholder wealth maximization. The financing management includes the decision concerning the various sources of money, the allocation of fund and last but not the least the distribution of funds to the various sectors of an organization. The future of a company depends on its ability to generate more money that comprises of an enhanced cash flow and attracting more investments from the stakeholders. Each of the above said work is accomplished by the virtue of capital budgeting. In today’s world, all the businesses look for any opportunity that will help multiplying the shareholders value. Capital management ensures that the firm takes suitable investment opportunities that will yield positive results and have good potential for return in future.Capital budgeting is a process that is used to ascertain whether a firm’s investments or the projects undertaken would be worth more to the business with respect to their cost perspective. The process of allocating budget to any investment opportunity or a project is very crucial, as they cannot be easily reversed once they are implemented (Peterson and Fabozzi, 2002).
It is imperative for the managers to adopt the sound capital budgeting technique for future benefits, needless to mention that this method is helpful to safeguard company’s funds from any loss as well. Funds are invested in both long term and short-term assets. Capital budgeting primarily concerns the investment in any long-term project or an asset. The asset can be tangible and or intangible item. Tangible items include property, setting up a new factory or plant or any equipment. Non tangible or intangible items includes investment in a new technology, processes through which an advanced software and products are created, patents, trademarks, various researches, designs, developments and testing are also considered as an intangible asset. Capital investments can be differentiated from the recurrent expenditure. The capital investment projects are in general large and their profits or the cash flow spreads over many years (Baker and English, 2011).
The projects are much long lived as well. The return on these investments has an effect on the future cash flow to the company. They are thus the decisive factor regarding the future investment by the stakeholders and the risk associated with the cash flow. Firms should take up the project that has a good potential to enhance the cash flow and would have great influence on the business over a period.
The capital budgeting processes plays an important and a critical role in shaping up the business and are related to the firm’s success or failure, to an extent. It measures the performance of the firm and builds the standard and parameter to gauge and analyze any investment opportunities with respect to the market (Baker and English, 2011).