Question

What happens in a capital budget process and what are some potential issues?

Answer 1

Capital budgeting process involve how much you actually allocate differently for debt and equityas a proportion of your total capital and their you determine what percentage of capital should be obtained by debt and what percentage of capital should be obtained by equity.

The major issues with the capital budgeting process is that

1) usually decisions are for long-term and are not reversible

2) uncertainty can lead to to wrong decision making which can impact the long-term durability of the company on the whole

3) the techniques and the factors are actually assumed and are not real and they are subject to risks.

4) capital budgeting is a very expensive process and it involves lot of complexity in determining the proportion of debt and equity