Capital Budgeting Process, Types Of Capital Projects And Types Of Capital Budgeting Decisions

October 6th, 2008 Comments off
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Earlier article explain what’s capital budgeting and its importance.

Append below explains the process, types of capital projects and capital budgeting decisions a firm needs to embark on:

Capital Budgeting Process Involves :

·               Generating long-term investment proposals which are consistent with a firm’s long term objectives

·              Estimating the relevant after-tax incremental cash flows for these project proposals

·              Evaluating these cash flows

·             Selecting the project that will maximize shareholders’ wealth

·               Reevaluating these projects from time to time for control purposes and carrying out post-audits for completed projects.


Types Of Capital Budgeting Projects:

·               Independent projects-projects unrelated to each other where a decision to accept one project will not affect the decision to accept another

·               Mutually exclusive projects-the decision to choose only one project from the many being considered.

Types Of Capital Budgeting Decisions:

·              Capital Budgeting Decision for Expansion purposes or

·              For replacement of existing assets




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