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:
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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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