Question

Write an essay in our own words about:

The capital budget and risk

·         The importance of the issue for the managerial finance

·         Why should know about it?

·         What use is the theme for a financial manager?

Answer 1

Capital Budgeting- This is a process of selecting the best project that provides higher return and cash flows.

The capital budget and risk- Capital budgeting decision brings risk with it. There are different types of risks involved with capital budgeting:

Payback period- Payback period tells the time limit within which company expects to receive the cash flows. After the time period expires and still investors are not getting return, it is a matter of concern and a risk.

Change in the cash flow- Capital budgeting decision is crucial one. Any change in element during capital budgeting process, can change the future cash flow, changing any decision or element is a risk.

Inaccurate estimation- Future cash flows are estimated on the basis of probability measures and other techniques, these results can be inaccurate sometimes. It is not 100% accurate.

The importance of the issue for the managerial finance.

Which issue, you are talking about? Please elaborate your question.