Presented by: Huzaifah Irshaad

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Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial manager must be able to decide whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives. To do this, a sound procedure to evaluate, compare, and select projects is needed. This procedure is called capital budgeting.

“Capital Budgeting” by Huzaifah Irshaad 2

Meaning of Capital Budgeting :

The term Capital Budgeting refers to the long-term planning for proposed capital outlays or expenditure for the purpose of maximizing return on investments. The capital expenditure may be :

• Cost of mechanization, automation and replacement.• Cost of acquisition of fixed assets. e.g., land, building and

machinery etc.• Investment on research and development.• Cost of development and expansion of existing and new

Projects.

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The following are the important objectives of capital budgeting:

To ensure the selection of the possible profitable capital projects.

To ensure the effective Control of capital expenditure in order to achieve by forecasting the long-term financial requirements.

Determining the required quantum takes place as per authorization and sanctions.

To facilitate co-ordination of inter-departmental project funds among the competing capital Projects.

To ensure maximization of profit by allocating the available investible.

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Process of Capital Budgeting:

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