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Selection of profitability investment project is the most important long term planning decision of finance manager.The long term investments in to different fixed assets and investment proposals involve capital outlays which are expected to generate returns to the firm over several years.Investment into long term assets like plant facilities,computers,transportation vehicles and such alike are expected to improves the productive capacities and consequently the future survival of the enterprise.
Firms decision to commit funds into various long term investment,therefore draws considerable significance since such decisions influence the future profitability of the firm, shareholders wealth and direction of growth of the enterprise.
Since the investments involving acquisition of capital assets are very large as well as irreversible.the firm should carry out long range planning considering the ” Business risk” and ” Financial risk ” involved in the process.
All such long term plan regarding selection and determination of profitable investment projects in which the firm intends to invest is called as ” Capital Budgeting “.
Followings are some example of the projects where Capital Budgeting is required.
- Purchase of new machinery
- Expansion of product line.
- Replacement of existing assets
- Lease-versus-buy analysis
- Merger and Acquisition
Capital budgeting process.
- Formation of long term goal
- Generating investment proposals
- Cash flow estimation.
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10 Comments. Leave new
Nice ,but it can be improved ,by elaborating more on topic.
Asset management requires capital budgeting. Nice article Suryakant.
Nice article
A good one.But just a suggestion a concrete conclusion could have made it even better!
Good effort
Very informative.
informative article
Worth reading.
very well explained with the help of examples !
good work !
liked it 🙂
very informative