Question

In: Finance

Explain what is capital budgeting 300 words

Expert Solution

Capital budgeting is a method of analyzing and comparing substantial future investments and expenditures to determine which ones are most worthwhile. Construction of a new plant or a big investment in an outside venture are examples of projects that would require capital budgeting before they are approved or rejected.

An organization is often faced with the challenges of selecting between two projects/investments or the buy vs replace decision. Ideally, an organization would like to invest in all profitable projects but due to the limitation on the availability of capital an organization has to choose between different projects/investments.

Objectives of capital budgeting -

1) Selecting profitable projects.

2) Capital expenditure control

3) Finding right source for funds

Capital budgeting process (Steps) -

1) Finding investment opportunities

2) Evaluations of all investment proposals

3) Choosing the most profitable investment

4) Capital budgeting and apportionment

5) Performance review

Capital budgeting techniques -

1) Payback period method

2) Net Present value

3) Accounting Rate of Return

4) Internal Rate of Return (IRR)

5) Profitability Index

Conclusion - Capital budgeting is a predominant function of management. Right decisions taken can lead the business to great heights. However, a single wrong decision can inch the business closer to shut down due to the number of funds involved and the tenure of these projects.

jeff jeffy answered 5 months ago

explain capital budgeting in 300-350 words.

Question 5 – Explain capital budgeting in your own words. Explain one capital budgeting method in...

Question 5 – Explain capital budgeting in your own words. Explain one capital budgeting method in detail and how Organic Produce Corporation’s weighted average cost of capital affects capital budgeting decisions.

Importance of Capital Markets In 300 words, please explain the importance of capital markets to corporations....

Importance of Capital Markets In 300 words, please explain the importance of capital markets to corporations. What is the difference between a primary market and secondary market? How do these types of capital markets differ in their impact on corporations? What are some influences that may negatively impact capital markets and how can corporations help keep these influences stabilized? +3 References would be nice! Thanks in advance and answer will be definitely well-rated.

Describe the budgeting control process and explain how significant variances are determined. minimum of 300 words.

What is capital budgeting? What are some of the tools used in capital budgeting? How are...

What is capital budgeting? What are some of the tools used in capital budgeting? How are they used?

Briefly explain the importance of the capital budgeting. Then, explain the pitfalls (if any) of capital...

Briefly explain the importance of the capital budgeting. Then, explain the pitfalls (if any) of capital budgeting and describe how each pitfall influences the decision to accept or reject an investment. Support your post with specific references to each type of capital budgeting: net present value, internal rate of return, and payback.

What is capital rationing? How capital budgeting projects are chosen when capital rationing exist? Explain.

6) Refer to the capital budgeting narrative. What is the MIRR of the project? Capital Budgeting...

6) Refer to the capital budgeting narrative. What is the MIRR of the project? Capital Budgeting Narrative: (Use the following information for questions referring to the narrative): Aferine Electric is considering a new project. The initial investment required is $106,639.60 and the cost of capital is 8%. Expected cash flows over the next four years are given below: Years Cash Flow ($) 1 7,000 2 37,000 3 41,000 4 90,000 A) 17.1% B) 13.8% C) 14.1% D) 15.0% E) 8%

What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an...

What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions?

A capital budgeting project has inflows of 300 for 5 years, and an initial investment of...

A capital budgeting project has inflows of 300 for 5 years, and an initial investment of 1,200. However, management recently decided to reduce the size of the capital budgeting project. The initial investment will decrease by 180 to 1,020 and the cash inflows will decrease by 40 to 260. As a result, in comparison to the original NPV profile, the horizontal intercept of the NPV profile for this reduced capital budgeting project shifts: Multiple Choice right and the vertical intercept...