Introduction to Capital Budgeting, Accountancy and Financial management Video Lecture | Accountancy and Financial Management - B Com

Ans. Capital budgeting is the process of evaluating and selecting long-term investment projects that involve significant cash outflows. It helps in determining which projects or investments are worth pursuing based on their expected returns and risks. Capital budgeting is important in financial management as it helps in allocating financial resources efficiently, maximizing shareholder wealth, and making informed investment decisions.

Ans. There are several methods used in capital budgeting, including: 1. Payback Period: This method calculates the time required to recover the initial investment in a project. 2. Net Present Value (NPV): NPV calculates the present value of the expected cash inflows and outflows of a project, considering the time value of money. A positive NPV indicates that the project is expected to generate more cash inflows than outflows. 3. Internal Rate of Return (IRR): IRR is the discount rate that makes the present value of cash inflows equal to the present value of cash outflows. It represents the project's profitability and is compared to the required rate of return. If IRR is greater than the required rate of return, the project is considered acceptable. 4. Profitability Index (PI): PI is the ratio of the present value of cash inflows to the present value of cash outflows. It helps in ranking projects based on their profitability. 5. Accounting Rate of Return (ARR): ARR measures the profitability of a project by comparing the average annual accounting profit to the initial investment.

Ans. Capital budgeting plays a crucial role in financial decision making by helping businesses evaluate investment opportunities. It allows companies to assess the financial viability of long-term projects and make informed decisions regarding resource allocation. By considering factors such as expected cash flows, risks, and profitability, capital budgeting enables businesses to maximize shareholder wealth, achieve strategic objectives, and ensure the efficient use of financial resources.

Ans. Accountancy plays a significant role in capital budgeting by providing the necessary financial data and information for evaluating investment projects. Accountants help in preparing accurate financial statements, calculating cash flows, and analyzing the financial performance of the company. They ensure that the financial information used in capital budgeting is reliable and relevant. Accountancy also helps in monitoring and controlling the financial aspects of ongoing projects, ensuring that they stay within budget and achieve the desired financial goals.

Ans. Financial management plays a crucial role in the success of capital budgeting. It involves various activities such as financial planning, budgeting, risk management, and financial analysis. Financial managers are responsible for assessing the financial feasibility of investment projects, determining the cost of capital, and evaluating the potential risks and returns. They provide the necessary financial expertise and guidance to make sound investment decisions. Effective financial management ensures that the capital budgeting process is aligned with the company's overall financial goals and strategies, ultimately contributing to the success of the projects and the organization as a whole.