Capital Budgeting and Decision Making: A Case Study

This report discusses the importance of capital budgeting in decision making and analyzes a case study on forecasted cash flow for a municipal bus service route. It also explores factors influencing capital financing and allocation functions during the capital budgeting process.

Assessment

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Capital budgeting.........................................................................................................................3
Overview of the case...................................................................................................................3
Capital budgeting use in the case study.......................................................................................4
Factors influence Capital financing and allocation functions during Capital Budgeting Process
.....................................................................................................................................................5
Critical review of evaluation.......................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Capital budgeting have been identified to have the paramount level of importance in decision
making aspect. The profitability of business has the concern depends upon the level of
investment made for the longer period. Moreover, the investment has the need to be done
properly though proper evaluating the proposal by the capital budgeting so it needs special care.
in this report there will be clear discussion of the case study which is involving capital budgeting
decision making on the forecasted cash flow for he proposes municipal bus service route. In
addition to that’s the report will discuss on the other factor which are involves Capital financing
and allocation functions during Capital Budgeting Process
MAIN BODY
Capital budgeting
Capitals budgeting is used to have the decision making for the long-term investment in order to
analyse the project are fruitful for the business. In addition, it will be helping out analyse the
expected and required are of return in the upcoming future. It is important to have note that’s
capital expenditure have the requirements of huge amount of funds so before doing such
expenditure in capital asset management do capital budgeting to assure themselves that the
capital spending will bring profits in the business. In the case the firm have the analyse the
various case studies and resources who have the uses of the paybacks method, net present value
and internal rate of return as the important analytical tool which can be used for the finding
accuracy and feasibility in the business decision making. On the other hand, it is important to
note that’s the capital budgeting is done for the long term which is majorly irreversible in
natures. Most of the techniques used in this approach have been based on the assumptions and
proper estimations which will always be remain at point of uncertainty. Hence the capital
budgeting turning out to be retrospective as the inclusion of risk factors and discounting factor
will be remaining subjectivity to the manager perception.
Overview of the case
The report will have been presenting the case study of regional university situated
approximately 25 miles away from the community. The case is based on the actual bus services
as the community is being the significant numbers of the university faculty, staff and students.
In the case the staff member has requested the commuter bus to transport people to and forth the
community down university and vice versa. The student has in roles of the bus service
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controllers and the staff to have the payment. The case have been referred to be unique as , there
is involving of the significant brain storming which is properly linked to creative thinking in all
aspects. As per the case there were several commuters who will be finding out the bus option for
benefited along with making the profitable to university in significant manner. On the other
hand, the contradictory statements as the company or business is not having the liability of
proving the transportation o the employees. So, it is every important of the staff to maintain their
equipment and increase in the university at financial level. MARTS is a public transportation
system for the urbanized Midtown Area, which travels about 1.5 million miles per year.
Capital budgeting use in the case study
In the case of employments there capital budgeting have been the told to analyse the feasibility
of the bus route. The capital budget have the major implication in long term duration as this
will be effecting the future cost structure and growth. The lack of investment in the asset will be
influencing the composite position of the firm. As in the report, the penny have the proper
explanation of service as there the bus route can be sided in the public funding. In the effect there
service will be whole paid by the entirely the users fares and must be operated for the profit
basis. In the case the firm have the analyse the various case studies and rescuer who have the
uses of the paybacks method, net present value and internal rate of return as the important
analytical tool which can be used for the finding accuracy and feasibility in the business decision
making.
As per the case they have been use of pay back method which is termed to have the expected
time period between the date of investment and recovery in the cash amount invested. as per the
case it has been evaluated as 4 the year will be payback time. In addition to that’s their firm have
the usage of NPV in calculating amount to be invested with the present value of the net cash
inflows. There have been use of different factor which can be used in the influencing the risk of
investment, cost of obtaining the result. As per the positive relation net present value indicating
the present value of the cash inflows exceeds the amount to be invested, making the investment a
desirable investment. As per the case, it has been calculated as $2,456 which stated there is the
positive relations as managing proper feasibility over the idea.
The last option in to have the proper check in the internal rate of return which is about to 25% as
uses the present value concepts to have computing the rate of return form the capitals investment
proposal. hence as per the proper analysis the one-way average as one fare to have the charging
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the earn to the 25% of the restore in about to the $7.43. The case has the proper usage of the
Microsoft excel, with columns for the costs and revenue.
Factors influence Capital financing and allocation functions during Capital Budgeting Process
It is important for the business to have better understanding and need identification of the
projects to be evaluated in care full manner. This will have the inclusion of the dependence on
the upon the returns, a particular project is either selected or rejected. In addition, the factor of
the influencing the capital budgeting decision making have appropriate decision in terms of the
investment on the current funds for addition, disposition, modification or replacement of fixed
assets.
The actor is such as
Cashflow of the Project
The corporation have to take the investment decision involving the vast amount taking major
expectancy over creating the some of cash flows over the period of time. The cash flow is have
been in form of series in term of cash receipt and payment to be done over the life of payments
of investment.
Rate of Return
The most significant standard on the rate of return as the proper calculation have proper basis of
the expected returns from each proposal and the appraisal of risk involved. The keep of the
discounting factor have been the clear assumption which is avoiding all the rested factor ins
imagist manner, in such situation the ethe maximum change of getting the thing in accurate.
The Investment Criteria
The last is about to have taking the decision in casting the vesture involving all critical
calculations regarding the amount of investment interest rate, cash flows and rate of return. There
are dissimilar techniques to appraise investment proposals which are known as capital budgeting
techniques.
Critical review of evaluation
As the critical evaluation as the most important and significant factor have the need to
understand as selection of capital budgeting cannot be able to provide the accurate resume over
selection of the project inaccurate manner. All the techniques used in the capital budgeting have
the involvement of the clear estimation and assumption with making the concern over uncertain
which is prevailing market. In the case the firm have the analyse the various case studies and
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rescuer who have the uses of the paybacks method, net present value and internal rate of return
as the important analytical tool which can be used for the finding accuracy and feasibility in the
business decision making. One more critical point is to note the capital budgeting is done for the
long term which is majorly irreversible in natures.
CONCLUSION
From the above file it can be concluded as the investment has the need to be done properly
though proper evaluating the proposal by the capital budgeting so it needs special care. The
capital budgeting turning out to be retrospective as the inclusion of risk factors and discounting
factor will be remaining subjectivity to the manager perception. As per the case there were
several commuters who will be finding out the bus option for benefited along with making the
profitable to university in significant manner. The capital budget have the major implication in
long term duration as this will be effecting the future cost structure and growth. As per the case,
it has been calculated as $2,456 which stated there is the positive relations as managing proper
feasibility over the idea. The factor of the influencing the capital budgeting decision making
have appropriate decision in terms of the investment on the current funds for addition,
disposition, modification or replacement of fixed assets.
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REFERENCES
Books and Journals
Online
Malenko, A., 2019. Optimal dynamic capital budgeting. The Review of Economic Studies,
86(4), pp.1747-1778.
Batra, R. and Verma, S., 2017. Capital budgeting practices in Indian companies. IIMB
Management Review, 29(1), pp.29-44.
Kengatharan, L., 2016. Capital budgeting theory and practice: a review and agenda for future
research. Applied Economics and Finance, 3(2), pp.15-38.
De Souza, P. and Lunkes, R.J., 2016. Capital budgeting practices by large Brazilian companies.
Contaduría y Administración, 61(3), pp.514-534.
Hayward, M., Caldwell, A., Steen, J., Gow, D. and Liesch, P., 2017. Entrepreneurs’ capital
budgeting orientations and innovation outputs: Evidence from Australian biotechnology firms.
Long Range Planning, 50(2), pp.121-133.
Johnson, N.B. and Pfeiffer, T., 2016. Capital budgeting and divisional performance
measurement. Foundations and Trends® in Accounting, 10(1), pp.1-100.
Ghasemi Bojd, F. and Koosha, H., 2018. A robust goal programming model for the capital
budgeting problem. Journal of the operational research society, 69(7). pp.1105-1113.
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