Capital Budgeting | Accountancy and Financial Management - B Com PDF Download

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Capital Budgeting
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Capital Budgeting
Meaning of Capital Budgeting
Capital Budgeting is the process of evaluating
and selecting long term investments proposals
that are consistent with the goals of
shareholders (owners) wealth maximisation.
It is a process relating to the long term
investment of capital funds in which future
profitability of capital investment proposal is
studied.
Future profitability: inflow of profits or/and
reduction in costs.
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Capital Budgeting
Meaning of Capital Budgeting
Capital Budgeting is the process of evaluating
and selecting long term investments proposals
that are consistent with the goals of
shareholders (owners) wealth maximisation.
It is a process relating to the long term
investment of capital funds in which future
profitability of capital investment proposal is
studied.
Future profitability: inflow of profits or/and
reduction in costs.
In capital budgeting, decisions are taken on long 
term assets (more than one year) which yield 
returns (cash inflows) over a period of time 
(during their economic life) but involve investment 
(capital expenditure or cash outflows) at present.
Capital expenditure is using of funds that is 
expected to produce benefits over a period of 
time exceeding one year. 
Thus, Capital Budgeting is the total process of 
generating, evaluating, selecting, executing and 
following up of capital expenditure alternatives.
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Capital Budgeting
Meaning of Capital Budgeting
Capital Budgeting is the process of evaluating
and selecting long term investments proposals
that are consistent with the goals of
shareholders (owners) wealth maximisation.
It is a process relating to the long term
investment of capital funds in which future
profitability of capital investment proposal is
studied.
Future profitability: inflow of profits or/and
reduction in costs.
In capital budgeting, decisions are taken on long 
term assets (more than one year) which yield 
returns (cash inflows) over a period of time 
(during their economic life) but involve investment 
(capital expenditure or cash outflows) at present.
Capital expenditure is using of funds that is 
expected to produce benefits over a period of 
time exceeding one year. 
Thus, Capital Budgeting is the total process of 
generating, evaluating, selecting, executing and 
following up of capital expenditure alternatives.
Estimates of Costs and Benefits or 
cash flows of a proposal 
In capital budgeting decisions, the costs 
and benefits of a proposal are measured 
in terms of cash flows. Net Cash inflows 
refers to cash revenue minus cash 
expenses.
Costs            Cash outflows
Benefits            Cash inflows   
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Capital Budgeting
Meaning of Capital Budgeting
Capital Budgeting is the process of evaluating
and selecting long term investments proposals
that are consistent with the goals of
shareholders (owners) wealth maximisation.
It is a process relating to the long term
investment of capital funds in which future
profitability of capital investment proposal is
studied.
Future profitability: inflow of profits or/and
reduction in costs.
In capital budgeting, decisions are taken on long 
term assets (more than one year) which yield 
returns (cash inflows) over a period of time 
(during their economic life) but involve investment 
(capital expenditure or cash outflows) at present.
Capital expenditure is using of funds that is 
expected to produce benefits over a period of 
time exceeding one year. 
Thus, Capital Budgeting is the total process of 
generating, evaluating, selecting, executing and 
following up of capital expenditure alternatives.
Estimates of Costs and Benefits or 
cash flows of a proposal 
In capital budgeting decisions, the costs 
and benefits of a proposal are measured 
in terms of cash flows. Net Cash inflows 
refers to cash revenue minus cash 
expenses.
Costs            Cash outflows
Benefits            Cash inflows   
Cash flows associated with a proposal 
usually involves the following three types 
of cash flows:
1. Initial Investment or cash outflows.
2. Net annual cash inflows.
3. Terminal cash inflows.