Kinds Of Capital Budgeting Decisions

Capital budgeting decision is a simple process in those firms where fund is not the.

Kinds of capital budgeting decisions.

It includes all those projects which compete with each other in a way that acceptance of one precludes the acceptance of other or others thus some technique has to be used for selecting the best among all and eliminates other alternatives. These are the decisions which compete with each other which mean the. 2 mutually exclusive decisions. Let us make an in depth study of the kinds and planning period of capital budgeting decisions.

Since capital budgeting includes the process of generating evaluating selecting and following up on capital expenditure alternatives allocation of financial resources should be made by the firm to its new investment projects in the most efficient manner. Capital budgeting primarily refers to the decision making process related to investment in long term projects an example of which includes the capital budgeting process conducted by an organization in order to decide that whether to continue with the existing machinery or buy a new one in place of the old machinery. All the investment decisions which give more return than the cost of capital they are acceptable while the investment decisions which give less return than the cost of capital they are rejected. This objective can be achieved either by increasing the revenues or by reducing costs.

Thus firm will make investment only if the decision is acceptable. Thus capital budgeting decisions can be broadly. Read this article to learn about the three important kinds of capital budgeting decisions.