Question

What are the attributes of a sound capital budgeting process?

Answer 1

Attributes of the budgeting process can be broadly classified into 5 steps.

1. First company must identify the opportunities. Company have many alternatives available firstly it has to identify and evaluate the available opportunities which combine with the goals of the organisations. After all this company will come up with the most profitable project. Which will be evaluated for further evaluation.

2. The next step can be to evaluate the cost associated with the peoject. Company will evaluate if the investment required is within the budget of the company. And considering all the costs associated with the project.

3. The next step will be to evaluate the benefits of the project. At this stage company will find out cash flows to be generated with the projects. It will evaluate if benefits are more than the costs. At this stage net present value of the project will be evaluated.

4. The next step is to assess the risks associated with the peoject. Company will evaluate if the risks are worth taking keeping the costs and benefits in mind. Company will evaluate the chances of success and failure of the project

5. This is the final step. After all the evaluation company will select the most profitable project. Keeping all the factors in mind. And. will implement the selected project.