In regards to analysis of the capital expenditures and operating expenses involved in a capital budgeting...

In regards to analysis of the capital expenditures and operating expenses involved in a capital budgeting process, what would be the best approach to factoring the estimation of the incremental revenues/cost estimates and what types of forecasting methods would be used?

Expert Solution

When we need to factor in in the estimation of incremental revenue and cost estimate in the overall capital expenditure and operating expenses involved in the capital budgeting process,then we will be using the risk weighted average method of cost of capital in order to discount the cash flows of the project so that we can be proactively discount the uncertainties in the future.

The cash flows related to to future cannot be predicted accurately as there would be abnormal transactions also taking place and we need to be conservative and we need to discount it accordingly at the present with being more conservative by risk weighting the entire weighted average cost of capital which will be used in present value analysis as a discounting factor so we will be trying to be proactive and we will try to discount all these incremental revenue and cost estimate in forecasting the overall cash flows.

We shall also be looking into the nature of the business as well as the past trends in order to estimate and forecasted accordingly.

jeff jeffy answered 2 years ago

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