Capital Budgeting discussion.docx - Capital Budgeting are...

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Capital Budgeting are those decisions where firm or organisation decides where to invest their current funds most efficiently in the long term projects so that they can expect flow of benefits over a series of years and increase their wealth. Such decisions are important as– They generally involve huge investments, efforts, time, resources and commitments They influence firm’s overall growth in long run They determine the degree of risk in firm’s business Such decisions are very complex and difficult to make, it involves assessment of future cash flows and events. Any changes in economic, social, political or technological can have impact on such decisions, so any error in evaluating investment proposal or project can be very costly because Such decisions are generally irreversible, so any huge investment in equipment or other capital item will be difficult to liquidate back again and that too at lower value.

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