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