Why should a capital budget be flexible?

Expert Solution

capital budget:- capital budget may be defined as the statement showing the expenditure and revenue the associated with the acquisition of capital assets. The capital budgeting techniques are used to determine the worth of long term investments in a company. capital budget should be flexible as it is depends on factors like structure of capital, interest rates offered by financial institutions, methods of accounting.

structure of capital:- The capital structure is changes from time to time based on the availability of capital in the company. some times the company may go for debt structure and some times for equity in this case it is necessary to change the budget that is prepared for the acquiring the capital. The price of capital assets will not be same in all cases sometimes it will be high and some times it will be low.

Rate of interest:- The rate of interest charged by financial institutions keeps on changing from time to time. it depends the economic situations and exchange rates all over the world.The exchange rates all over the world are fluctuating from time to time so it is required to prepare budget based on the budget so it should be flexible.

methods of accounting:- Methods of accounting policies and practices keeps changing from time to time, the rate of depreciation that is charged on fixed assets will also effect the resale of fixed assets so while preparing the capital budget it should be included.The budget should be flexible in order to change with the change in accounting policies and practices.

jeff jeffy answered 2 years ago

Why companies should have a flexible budget. Please answer in word format and in 350 words....

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