Financial Managment Assignment Help >> Capital Budgeting & Project Planning

When the funds are invested, number of decisions to be taken and benefits are expected over a long time period. The finance manager of concern has to decide about the composition of the firm. The assets of the firm are broadly classified into two categories.

a. Fixed

b. Current

The financial decision with respect to fixed assets is known as capital budgeting. It means planning for capital assets. The capital budgeting decision refers to the decision to be taken for investment of money for long term project. These projects may include installing machinery, setting up factory and others. The financial manager has various techniques and tools by which he assists proper capital budgeting decisions.

Importance of Capital Budgeting Decisions

a. Substantial Expenditure
b. Long Time Period
c. Irreversibility
d. Complex Decisions

Types of Capital Investment Decisions

a. On the basis of firm’s existence

1. Replacement and Modernisation decisions
2. Expansion Decisions
3. Diversification Decisions

b. On the basis of decision situation

1. Mutually exclusive decisions
2. Accept-reject decisions
3. Contigent Decisions

Capital budgeting related topics

Defining capital budgeting, reason for importance capital budgeting, project evaluation technique, cut off rate, desirability factor, net present value method, internal rate of return method of ranking of project, capital rationing, estimation of future cash flows, cost benefit analysis, relationship between risk and return

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