Capital Budgeting and Strategic Control

Running head: CAPITAL BUDGETING
Capital Budgeting and Strategic Control
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1CAPITAL BUDGETING AND STRATEGIC CONTROL
Table of Contents
Capital Budgeting Process.........................................................................................................2
Capital Budgeting.......................................................................................................................5
Net Present Value...................................................................................................................5
Payback Period.......................................................................................................................5
Discounted Payback Period....................................................................................................6
Profitability Index..................................................................................................................6
Recommendations......................................................................................................................6
Reference....................................................................................................................................7

2CAPITAL BUDGETING AND STRATEGIC CONTROL
Capital Budgeting Process
Capital budgeting is an investment appraisal and planning process that is used by the
company for the assessment of the viability and visibility of the investment that will be done
by the company. The Investment of the projects can be in the form of purchase of an asset,
replacement of an asset, investment in some asset and other form (Wnuk-Pel 2014). It is
important for the company to assess the viability and the profitability that will be derived
from the investment so that the in the long-term the company is benefited from the same.
There are various tools and methods that are applied that act as an investment appraisal tool
helping the company in the overall development and suitability of the company. Investment
managers have various projects and options for the purpose of investment and the selection of
the same needs to be supported and backed with sound investment appraisal tool such that the
management of the company can give a sound base of profitability for the company. It is
important to select the right project at the right time and the same should be done by
analysing the same with the help of various investment appraisal tools and the key factors
which derives the profitability of the company (Capros et al. 2014).
Investment Appraisal Tools like Net Present Value, Internal Rate of Return, payback
period, discounted payback period and the profitability index are some of the common
investment appraisal tool that are applied by the investment managers for assessing the
viability and sustainability of the project (Chittenden and Derregia 2015). There are various
factors that influences the profitability of the company and the same should be forecasted at
different level and scenarios so that the management of the company takes the same into
consideration. Sensitivity Analysis shows the change in the key factors of the investment
project and the change or influence in the profitability of the company. The sensitivity
analysis of the pro0ejct will help the investment manager get to know the variability of the