Explain two arguments about the benefits and/or negatives of having a separate capital budget (it may...

Explain two arguments about the benefits and/or negatives of having a separate capital budget (it may be two positive, two negative, or one each)

Expert Solution

Merits:

- Efficient Planning Process: a separate capital budget would be focussing upon the long term projects like long term investment opportunities.

- A separate capital budget helps a firm to understand the risks involved in investing decisions. It tells the firm how these risks affect the return on the investment. In this way, the firm can make better-investing decisions and choose the projects wisely

Demerits:

- Decision made based on the separate capital budget are not reversible and can have long term impact

- Problems in quantifying risk and discount factors as such factors depend upon the qualitative aspects like investor's perception

Rahul Sunny answered 2 years ago

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Explain two arguments about the benefits and/or negatives of having a separate capital budget (it may...

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