Question

what additional factors may be key to  capital budget decisions?

Answer 1

The additional factors that may influence the capital budgeting decision are :

• The level of investment that the project requires : Some projects require more funds in comparison to the others. In case a project required a high investment and the company may not have sufficient funds , then the company may reject the project due to lack of investment.
• The degree of risk and uncertainty of the project : The degree of the risk and uncertainty affects the projects. If a project has a high degree of risk and uncertainty , then the company might reject the project. So, the degree of risk and uncertainty is considered before making any capital budgeting decisions.
• The obsolescence : the risk of obsolescence and replacement of fixed asset is an important factor to consider while making capital budgeting decisions.
• The degree of competition : every company should keep a close watch on the activity of the competitors. The company should take decision on weather to implement a project based on the level of their activity. If the competitors are going strong, then a company can accept projects to beat the competition.
• The non monetary factors like goodwill, safety and welfare of employees are also considers before accepting any project.