2Course TopicsOverview Capital budgeting is belonging to the main function in financial management. Capital budgeting explains investment decision making, most important process for corporate finance. Capital budgeting determine the task whether to undertake an investment or not. Investment involves company’s long term investment. Firm performance reflects the success or failure. This course focuses on managing firm’s financial suggestion. The aim of following course is to evaluate which project is beneficial for the long term investment and set out the firm’s future cash flows and also help in risk understanding. The major strength of this course is its techniques applying on project of real companies, used on a daily basis. The core content of this course focus on the examples, the application of methods and also tried to mention cash flow analysis that allows those methods to provide practical aspect. After two to three section quiz helps to examine the course examples. Important topics, examples, formulas are given throughout the techniques evaluation.This course will study the different methods Net Present Value, Internal Rate of Return and Payback Period. Assets involved in business define company’s management. For example, a soap company’s a soap company because it runs through soap manufacturing appliances. The investment making is an important task than other financial decisions, where to raise fund from loan financing or how to deal with working capital.Apart from survival correct decision making and company’s success is also important for company’s growth and competitiveness based on continuous new product ideas, output productivity at low cost and existing product to perform better.
3Course TopicsConsidering the standards, capital budgeting standard set out the criteria to calculate Net Present Value and Internal Rate of Return, most widely rules for decision. The covered topics examine how to make cash flow analysis, discounted factor application and estimated projects. After knowing the application of different methods like payback period, account rate of return, Net Present Value and Internal rate of return the next motive is to cover the evaluation of estimated projects. Each topic given in this course examined the examples for proper understanding. After every two or three section quiz section inserted ends with an interpretation that highlights the keytopics from the course.IntroductionCapital budgeting emphasizes the planning of major project for the company’s long term investment. Investment involves company’s long term investment strategy, machinery replacement, new product, new capital assets, projects regarding research and development. Capital budgeting is also called as investment appraisal. Allocation of capital to several projects involves planning and funding of cash. Intention behind every investment budgeting strategy is to facilitate higher return. To understand every stage organization need to go through them whether it is of decision makingknowledge, position establishment by using option pricing analysis and also discounted cash flow analysis. Usually different approaches compared the projects performance and one of the non- discount methods are accounting rate of return and payback analysis. Ranking projects is also the task execute through capital budgeting where large amount of investment proposal takes in consideration. The purpose is to serve the budgeting to ensure
4Course Topicscapital expenditures and revenues. A framework of this particular model analyzes the performance of business and plans according to forecasting measure. To carry actual operation incapital budgeting manager considers the following conditions arise in an event.Decision makingUncertainty is the main reason in modern world decision making strategy. Proposed capital projects with management can take overall decisions and count the possible outcomes of existingmarket circulation. Decision tree implementation ensure that using different software’s like expert choice and decision pro to gain knowledge regarding decision. Decision tree provided trade included private trade building to help. Different opinions and ideas, group and team execution are much better due to decision tree. Option pricing Uncertainty is an important factor while considering option pricing also. First stage provide knowledge through decision tree whereas second stage ascertain the option offered by customers where producing company have options to change according to suitable option for the project to go through. Options can be taken in various ways: postponement, alteration, changes etc. How torecognize the project with the options values organization need to manage capital projects. Financial management in accounting studies the present values of assets. Inflation is main cause to reduce the cost of asset over the useful life. Future perspective involves uncertainty and sunk cost of money recognized the respective time value of money.
5Course TopicsDiscounted rate of return consists of net present value, IRR and profitability index. The key element decision making usually examine these method. The entire company goes through the purpose only to generate profitability. Operating expenses involves in every sales and to increasethe performance in order to profitability. Profit throughout the whole system obligated to pay thisoperating expenses. The primary component of capital budgeting is making proposal in order to maximize the growth for through put to operate favorably. Cost reduction is less important. Payback analysis decisions determined time period and revenue generation. Cash flows determination after tax consider in capital budgeting. Some risk involvements are in its adjustment. After considering decision tree knowledge for decision is making and also optionsbuilding for company’s projects. Different factors comprised its scope are as: 1)Compensate the risk engagement in projects2)Acknowledge the risk for foreign projects.3)Adjustment in capital budgeting for expected results.Economic life of planning projects can evaluate through stages of capital budgeting whereas calculation is another level to examine capital projects. DepreciationAssets including capital assets are associated with depreciation, estimated life of an asset helps tocalculate the depreciable value of asset. Depreciation is a non-cash item in cash flow statement. Application of depreciation deducted to measure taxes on project revenues payment and also added depreciation to bring cash flow.Working Capital
6Course TopicsInvestment basic requirement is to increase working capital. New production consumes more working capital that often needs stock and salaries to pay. Change in working capital means mainly leads to company’s project. End in project evaluation brought reverse mechanism in projects.Overhead:Moreover planned projects involved in allocated overheads to increase proportion often. There isno difference happens with nature of allocation. For relevancy of cost there is need to access the overhead implemented in respective project associated with more capital investment.Financing Costs: To funding a capital project financing is needed. To cover additional cash flows need to plan the capital project in its best way double cost effect possibility eliminates due to financing cost deduction from it. Discount rates included in financing cost from our capital project.Capital budgeting decisions influenced by the different factors: Funding for the business projectsCapital criteriaInvestment and replacement Government interventionEconomic life criteriaEngagement of risk Location of an organizationPredictions of market performance
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