![]() ![]() The last point (g) is crucial and this is the subject of later sections of the chapter. G) a set of decision rules which can differentiate acceptable from unacceptable alternatives is required. A systematic approach to capital budgeting implies:ī) the creative search for and identification of new investment opportunitiesĬ) classification of projects and recognition of economically and/or statistically dependent proposalsĭ) the estimation and forecasting of current and future cash flowsĮ) a suitable administrative framework capable of transferring the required information to the decision levelį) the controlling of expenditures and careful monitoring of crucial aspects of project execution Capital budgeting versus current expendituresĪ capital investment project can be distinguished from current expenditures by two features:ī) a significant period of time (more than one year) elapses between the investment outlay and the receipt of the benefits.Īs a result, most medium-sized and large organisations have developed special procedures and methods for dealing with these decisions. The chapter ends by showing how marketers can take this in to account. One problem which plagues developing countries is "inflation rates" which can, in some cases, exceed 100% per annum. The timing of cash flows are important in new investment decisions and so the chapter looks at this "payback" concept. It does this by examining the techniques of net present value, internal rate of return and annuities. However, it seeks to build on the concept of the future value of money which may be spent now. The subject matter is difficult to grasp by nature of the topic covered and also because of the mathematical content involved. Vast sums of money can be easily wasted if the investment turns out to be wrong or uneconomic. Structure of the chapterĬapital budgeting is very obviously a vital activity in business.
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