What is capital budgeting? What are the features of capital budgeting? State a business example.
Understand the Problem
The question is asking for a definition of capital budgeting, its key features, and an example from a business context. This involves explaining what capital budgeting is, outlining its main characteristics, and providing a practical instance where it is applied in a business scenario.
Answer
Capital budgeting evaluates projects by analyzing cash flows. Features: long-term, risky, large capital, hard to reverse. Example: New plant purchase.
Capital budgeting is the process businesses use to evaluate major projects and investments, focusing on analyzing expected cash inflows and outflows to determine profitability. Features include long-term outcomes, significant risk, large capital, and difficult reversibility. A business example is evaluating the purchase of a new manufacturing plant.
Answer for screen readers
Capital budgeting is the process businesses use to evaluate major projects and investments, focusing on analyzing expected cash inflows and outflows to determine profitability. Features include long-term outcomes, significant risk, large capital, and difficult reversibility. A business example is evaluating the purchase of a new manufacturing plant.
More Information
Capital budgeting helps businesses prioritize projects that align with strategic goals and offer potentially higher returns, despite the risks and capital required.
Tips
Confusing capital budgeting with short-term budgeting methods can lead to selecting projects that do not align with long-term strategic goals.
Sources
- Capital Budgeting: What is it, Types, Methods, Process & Examples - happay.com
- Capital Budgeting: What Is It and Best Practices - NetSuite - netsuite.com
- Capital Budgeting: Features, Methods, Importance & Examples - geeksforgeeks.org
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