Capital Budgeting: Methods and Analysis

Running head: CORPORATE FINANCIAL MAMAGEMENT
Corporate Financial Management
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1CORPORATE FINANCIAL MAMAGEMENT
Table of Contents
Introduction:...............................................................................................................................2
Sensitivity analysis in capital budgeting:...................................................................................3
Scenario analysis in capital budgeting:......................................................................................4
Break even analysis in capital budgeting:..................................................................................5
Simulation analysis in capital budgeting:..................................................................................5
Conclusion:................................................................................................................................6
References:.................................................................................................................................6

2CORPORATE FINANCIAL MAMAGEMENT

3CORPORATE FINANCIAL MAMAGEMENT
Introduction:
Capital budgeting refers to the process of planning with respect to capital expenditure
in order to maximize the long term profit of the organization. — The returns form, which will
be realized in future time periods. Capital budgeting refers to a long term planning in
selection of the projects which gives returns for several years in future, and the numerous
expenditure that is incurred in the initial years of the project to get returns throughout the life
of projects. The finance manager has several tools as well as techniques through which he
assists the management for taking r capital investment decisions. Capital budgeting decision
serves as a choice as to money should be invested for long duration projects in the form of
machinery installment or creation of additional capacities in order to manufacture a part that
might be purchased from outside. Capital budgeting is to planning with respect capital assets.
In case of capital budgeting, the manager knows various techniques; that are in the form of
sensitivity analysis, scenario analysis, break-even analysis as well as simulation analysis to
ensure effective decision making (Adkins and Paxson 2014). As well as, the managers are
must use the new types of projects in an efficient manner and then the capital budgeting
techniques are taken into account. There are some investment appraisal methods available for
appraisal of proposal of investment are internal rate of return (IRR) and net present value
(NPV). These methods can be useful in various projects and leads the managers to achieve
with the maximum output. Capital budgeting is the process for evaluating and making a
comparison for future investments as well as expenditures to find out which are the most
valuable. In other words, capital budgeting is said to be known as a process that is used by the
management of the company to associate that projects related to capital would be creating the
highest return as compared to the funds that have been invested in the project (Nurullah and
Kengatharan 2015). Then after, a ranking of the project is done through return in terms of