The Importance Of Capital Budgeting

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The decision of whether to accept or deny an investment project as part of a company's growth initiatives, involves determining the investment rate of return that such a project will generate. Capital budgeting is a step by step process that businesses use to determine the merits of an investment project. Whenever making an investment decision whether big or small it is imperative that we take into account the numerous risks and costs involved in it. Without conducting sufficient research on this it is highly dangerous, not to mention potentially lethal for the organization it self to go right ahead and bluntly invest without taking the customary precautions. For any investment that is about to take place business managers have a variety of methods to employ to assess the type, and quantity of risks and benefits involved in adopting that particular decision. It is highly recommended that any business manager no matter how experienced and learned actively employ these techniques and methods to save his business from potentially going bankrupt or ending up getting mired in any other disaster of the like. “The idea of capital budgeting is to assist managers of organizations make profitable and therefore informed decisions on acquiring and disposing of assets. It is only common sense that any normal person cannot know when and how to purchase any sort of asset, for your factory; or a new vehicle to deliver your goods; or even new land on which to build an extension to your showrooms? Capital budgeting has many angles to it because of which it can be employed and each technique will tell us how a project is affordable in numerical terms only, but because of which it will be easier for manage...

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...thods could prove to be the difference between a successful venture, and one that is deemed to be a failure. They are more like a financial window into the future and without question provides useful insight into your competitor’s position regarding their assets, and liabilities. And in today’s world of dynamic business changes where absolutely nothing is predictable and it is a standard prerequisite that adaptability be the core of survival of any business, these investment appraisal techniques come into play center stage for any business organization.


Unit Four: Investment Appraisal: Slide Show, Capital Budgeting: the key numerical techniques Worked Examples with Explanations., 12 October 2001 revised 8 May 2003

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