Question

Describe the 8 types of capital budgeting projects.

Answer 1

Answer-

The 8 types of Capital budgeting projects are

1) Replacement projects to maintain the business are normally made without detailed analysis. The existing operations should continue and the existing procedures or processes should be maintained.

2) Replacement projects for cost reduction determines whether the equipment is obsolete should bdereplaced with new ones.

3) Expansion projects that are existing are taken to expand the business and involve a complex decision making process as they require an explicit forecast of future demand.

4)   Expansion into new products/markets - These projects are undertaken for venturing into new products and entering new markets.  

5) New product or market development also requires a complex decision making process that will require detailed analysis.

6) Mandatory projects may be required by a governmental agency or insurance company and involvesafety or environmental issues.

7) Merger projects- These projects are formed by merging or acquiring of projects and are evaluated based on the synergies due to aquisition or merging.

8) Other projects - These projects are not easily analyzed through the capital budgeting process. These projects are pet projects of senior management or high risk for R&D projects.