Types of capital budgeting, Financial Management

Types of Capital Budgeting Decisions:

A business organization has to quite normal face the problem of capital investment decisions. Capital investment defines as the investment in projects whose results could be available only after a year. The investment in these projects are reasonably big and to be made immediately, but the returns can be available only after a period of time. The subsequent are some of the cases where capital investment can be useful:

Replacement: Replacements of fixed assets will become essential either on account of their being worn out or becoming dated on account of new technology.

Expansion: A firm can have to expand its production capacity on account of high demand for its products and inadequate production capacity. This will require additional capital investment.

Diversification: A business seems like to reduce its risk by operating in each market rather than in a single market. In such cases, capital investment can become necessary for purchase of new machinery and facilities to hold the new products.

Research and Development: In case of those industries where technology is quickly changing, large sums of money will have to be expended for research and development.

Miscellaneous: A firm may have to invest currency in projects which do not directly help in achieving profit oriented goals. For illustration, installation of pollution control equipment may be essential on account of legal requirements. Therefore, funds will be required for such purpose also. "

Posted Date: 2/14/2013 12:16:40 AM | Location : United States

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