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Advanced Engineering Economy 1. What issues would you consider in planning a capital budget?

Advanced Engineering Economy

1. What issues would you consider in planning a capital budget?

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Answer #1

1. Issues to be considered while planning a capital budget-

  • Cash flows - Since cash flows are volatile and fluctuates time to time, it needs to taken into consideration.
  • Inflation - Since inflation in the economy affects the cash flows, the impact of inflation needs to be taken into consideration before planning.
  • Riskiness - There are risks associated with politics, economic stability, etc, which needs to be addressed before drafting the final plan.
  • Cost of capital- Cost of capital can be influenced by the rate of interest in an economy, hence, the interest rates should be accounted for.
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