Question

Capital Budgeting Theoretical Framework.

Capital budgeting for a foreign project uses the same theoretical framework as domestic capital budgeting. What are the basic steps in domestic capital​ budgeting?

Answer 1

following are basic step in capital budgeting.

1 identify opportunities

first identify opportunities that you have. some time more then one opportunities . identify opportunities that that make sense for your company, ignore opportunities that does not suitable for you company.

2. Evaluation of opportunities.

after selection of opportunities now you have to shortlist the best opportunities that are most suitable for company's business model. evaluate which is best at the present time.

3. Cash flow.

cash flow is important factor for any project. you need to calculate how mush initial cash flow will require . we need to predict cash flow will receive in future . to predict cash flow we need some assumption and assumption should be realistic and should not  be favorable numbers.

4. selection of project

Here we need to select best project among all project. we use various metric to select project , metric like NPV, IRR, Payback and other, and choose only project that meet company's goal and in interest of shareholder.

5. Implementation

one we select project its time to implement project . we need to correct issues regarding project . review of project by some time interval.