Thus, capital budgeting is allocating the financial resources of a firm among the different available investment alternatives. It is long-term planning and it includes selection and evaluation of investment projects. The aim of our Capital Budgeting decisions case study writing help is not just to assist you with the concepts of capital budgeting but to improve your understanding so that you become experts in this field of study.
Kinds of Capital Budgeting Decisions
Capital Budgeting uses several processes including selection, evaluation, generation, and looking at the alternatives of capital expenses. The kinds of Capital Budgeting Decisions are discussed in detail in our Capital Budgeting Decisions essay assignment help as follows:
Accept-Reject Decision
A project is accepted if the payback period is less than the standard or the maximum payback period defined by the management. If you select from several projects, the project having the shortest period shall be selected. The firms make investments when the decisions are acceptable.
This method is simple to calculate and understand and requires fewer costs regarding time and money compared to other methods. It stresses early initial investment recovery and the funds released are put to an alternative use.
Mutually exclusive project decisions
This is the second capital budgeting decision method. In this method, the mutually exclusive projects compete in a manner with other projects that if you accept one project it will exclude the acceptance of other projects. You can choose only one method. Mutually exclusive project decisions are important when more than a single investment is acceptable under accept-reject decisions. When you accept the best alternative the other alternatives are eliminated.
Capital Rationing decision
Capital Budgeting is simple wherein a company has unlimited funds. In this method, independent investment proposals that yield a higher return are accepted. Capital Rationing is a situation wherein a firm requires a higher amount of finance compared to what is available with it. Investment projects are ranked according to predetermined criteria. The project having the highest return is first ranked.
The importance of Capital Budgeting
The importance of Capital Budgeting is explained in our help for assignment Capital Budgeting Decisions. Capital Budgeting is a process that is used by companies to determine or conclude the benefits of investment projects. Capital Budgeting is a way to create accountability and measurability.
A firm investing in resources on a project should have an idea of the risks and returns involved in it. This process determines the investment in long-term and financial profitability. Capital Budgeting looks into different aspects including looking out at new projects for investment, calculating approximate cash flows, monitoring and controlling expenditures, and other aspects.