Capital budgeting decisions usually involve analysis of:

Capital budgeting decisions usually involve analysis of: A. Cash outflows only B. short term investments only C. Long term investments D. Investment with certain outcomes only E. operating revenues

Answer

General guidance

Concepts and reason
Capital budgeting decisions: Capital budgeting decisions are considered to be the most important for a business as it involves huge outflow of funds. Once the projects are identified, the most economical project is chosen based on capital budgeting tools.

Fundamentals

Following are the capital budgeting tools: Net Present value approach: This tool of decision making helps the management to identify the present worth of future cashflows from the project which will accrue during the life. In NPV approach Discounted future cash flows are compared with the outflows to analyze the project. Payback period: Payback period is very simple and basic approach of capital budgeting decisions. In payback period approach, it is determined that how much time the project will tack to payback the initial investments.

Internal rate of return: Internal rate of the return is the discount rate at which future cashflows are equal to the initial outflow or where NPV is 0.

Step-by-step

Step 1 of 2

Capital budgeting decisions Involves analysis of both inflows and outflows. It involves analysis of return on outlay. The evaluation of the productivity of the fixed assets or long-life assets acquired by the company is known as evaluation of capital investments. This is also known as capital investment analysis or capital budgeting. The process of verifying and establishing the amount to be spent on property and equipment and deciding the kind of property and equipment to be purchased is referred to as capital budgeting.

Capital budgeting decisions are taken by analyzing the outflows and inflows of a particular project before accepting it. Future cashflows are discounted to compute the present work of inflows and compared with the initial outflow. If the inflow from the project is higher than the outcome then the project is viable otherwise not.

Step 2 of 2

Capital budgeting decisions usually involves analysis of long-term investments. The capital budgeting decision involves analysis of return on outlay of large sums of money over a long period of time usually more than one year or operating cycle.

Capital budgeting decisions usually involves analysis of long-term investments.


Analysis of cash outflows and inflows are in cash flow statements. Capital budgeting is a series of step which analyze the viability of the long-term investments only.

Answer

Capital budgeting decisions usually involves analysis of long-term investments.

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