Definition of Capital Budgeting
Capital budgeting is the branch of finance that the business organizations adopt for winding up the company. Capital budget planning can be referred to the decisions like replacing any asset, machinery, and equipment. The process of capital budgeting is adopted by a business organization when it plans to increase its value. Moreover, capital budgeting can be explained as the financing or budgeting method related to fixed assets and capital expenditure decisions. The students from the finance and accounting stream are required to do assignments on capital budgeting. Students can implement the learned procedures and methods of capital budgeting in their future career. The importance of capital budgeting is significantly high due to increasing company value and saving funds in the current time for utilizing the benefits in the future.
Various subtopics of Capital Budgeting
Several topics come under the head of capital budgeting assignments. Students old commerce stream are required to do projects on the below-mentioned topics.
- Managerial Accounting Assignment
- Bookkeeping Assignment
- Cost Accounting Assignment
- Accounting Assignment
- Accounting Theory Assignment
Purpose of Capital Budgeting
Capital budgeting is being done based on numerous purposes. The purposes are mentioned below:
- Finding profitable capital expenditure
- Identifying fixed assets with having the possibility of a higher value after the replacement
- Finding the funding amount that is required for capital expenditure
- Deciding whether any particular plan is required to be followed or not
Different factors of Capital Budgeting
The factors of Capital Budgeting are stated below:
- Discounting process
- Replacement decision
- Cash flow analysis
- The salvage value of the project
- Project risk
- Certainty Equivalent
- Firm risk
- Initial outlay
- Sensitivity analysis
- Depreciation charges
Characteristics of Capital Budgeting
Capital budgeting possesses many characteristics, which are as follows:
- Capital budgeting promotes the ways of saving funds for deriving benefits from the reserved funds in future.
- Long-term saving is also promoted through capital budgeting.
- Capital budgeting includes a lump sum amount of funds.
- Capital budgeting taken
Methods of Capital Budgeting
Capital budgeting can be performed by following several methods. The capital budgeting method’s selection depends on the business organization’s decision and its will for capital funding. The plans are stated below:
- Payback period method
- Net present value method
- Profitability index method
- The internal rate of return method
- Accounting rate of return method