Question

the capital budgeting process

Answer 1

The capital budgeting process begins with identification of suitable opportunities. The various investment options and the budgeted investment amount are first estimated. Thereafter the initial outlay for each investment is identified and the various cash flows associated with the projects are estimated. The future inflation rates and impact of taxation must be considered in this analysis . The cash flows are then analysed using different budgeting techniques to determine the best investment.

In certain capital budgeting methods such as NET present value method the cash flows are discounted at a predetermined discount rate. There are various other capital budgeting methods such as internal rate of return, payback period and discounted payback period methods which can be used for making the right decision.