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Name and describe two key observations that we can make about the capital budgeting decision.

Name and describe two key observations that we can make about the capital budgeting decision.

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Answer #1

Capital budgeting decisions refers to the decisions regarding the potential future benefits accruing from present investments which helps in determining whether to accept a project or not.

Observations regarding Capital Budgeting Decisions -

1) Affects Cost Structure: The cost structure of the company changese with the capital budgeting. For example- it may increase the fixed cost such as insurance charges, interest, depreciation, rent, etc.

2) Irreversible Decision: Once a decision is taken it is tough to be amended since it involves a high-value asset which may not be sold at the same price once purchased.

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