Question

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- Molding Solutions used a capital budgeting when investing in newer hot runner machines.

- The results of this investment were improved process time and labor cost savings.
- A great example of a company the didn’t innovate was Borders Bookstore. They didn’t keep up with the time by way of investment in technology and eventually closed all locations.

- Capital budgeting plays a role in our lives when considering purchasing new appliances. These are large expenses, however the investment in new equipment could result in long-term cost savings in our energy bills.

Answer 1

The capital investment is required at various points of time in order to meet the changing technology lecels, changing sales expectations and better operations.

If capital investment is not made, then the entity may become outdated.

As clearly stated in the above example, Borders Bookstore didn't keep up with the time by way of investment in technology and eventually closed all their locations. However, Molder Solutions used capital budgeting and results were improving.

Hence, capital budgeting decisions are important.

It is also important to note that capital budgeting decisions shall be properly made.

There are various tools for making capital budgeting decisions such as-

• Net present Value
• Payback period
• Discounted payback period
• Internal rate of return
• Profitability ratio