Q. What are the Difficulties of Capital Budgeting?

1. Measurement Problems: - Identifying as well as measuring the costs and benefits of a capital expenditure proposals tend to be difficult. This is more thus when a capital expenditure has a bearing on some other activities of the firm.

2. Uncertainty: - A capital expenditure decision engrosses costs and benefits that extend fall into the future. It is not possible to predict exactly what will happen in the future. Therefore there is usually a great deal of uncertainty characterizing the cost and benefits of a capital expenditure decision.

3. Temporal Spread: - The costs as well as benefits associated with a capital expenditure decision are spread out over a long period of time typically 10-20 years for industrial projects and 20-50 years for infrastructural projects.