Budgeting Techniques

Budgeting Techniques

Capital budgeting is one of the most important decisions faced by the financial manager. Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firm to maximize owner wealth. Viewed this way, it would be very difficult to meet the diverse interests of all shareholders. The four that will be covered in this document are the VPN, depreciation, profitability index, and books. Each method has its strengths and weaknesses, and that will be reviewed to determine which method is better than the rest. Goal is to maximize shareholder value now. This means that projects should be implemented as a result of positive net present value. Using the net present value (NPV), a measurement, capital budgeting involves the selection of projects that increase the value of the company because they have a positive NPV. Timing and rate of growth of cash flow is important only to the extent of its impact on the VPN.

Using VPN as the criteria by which a selection of projects for the efficient capital markets for the company has access to capital needed to achieve a positive NPV projects. Where this is not the case, may be capital rationing and capital budgeting process becomes more complicated. In the NPV of the project measures the difference between the present value of future cash flows of the project and the present value of its costs. CWP is the best method for evaluating projects and investments in the company. NPV values are shown in most examples to demonstrate why it surpasses other methods. If the table, a huge missed opportunity if the company will be used for repayment of the Rules, no benefits for shareholders, if within two years, were used as examples in this verse VPN. The reason is that the ...