Question

The Basics of Capital Budgeting

(a) Provide a detailed description of the topic.
(b) Provide two examples of how the selected concept is applied.
(c) Discuss the challenges faced with the concept selected. As part of this discussion, how will the selected item be implemented/Used in an organization and its significance?
(d) Discuss how the selected concept will change 5 years from now. What can the organizational leaders, financial analyst do today to ensure they are prepared for these advancements?
(e) Provide a graph chart or data with sample numbers indicating the topic you selected?

Answer 1

Answers:

Capital budgeting and investment appraisal, is the planning process used to determine whether an organization's long term investment such as new machinery, replacement of machinery, new plants, new products and research development project are worth the funding of cash through the firm's capitalization structure. Planning the eventual return on nvestments in machinery, real estate and new technology are all example of capital budgeting.

Different techniques of Capital Budgeting are as follows:

1. Payback Period
2. Discounted payback period
3. Net present value
4. Accounting rate of return
5. Internal rate of return
6. Profitability ndex

Advantages:

• Capital budgeting helps a company to understand the various risk involved in an investment opportunity and how these risk affect the return of the company.
• It helps the company to estimate which investment option would yield the best possible retun.
• Capital budgeting is important because it creates accountability and measurability.
• A capital budgeting descision is both a financial commitment and an investment
• Controling capital cost is also an objective of capital budgeting.

There are varities of method available in capital budgeting and also lot of benefits.. Also capital budgeting is easy to understand various techniques availableto get desired result.