Capital Budgeting : Is The Most Vital Instrument?

Capital planning and budgeting is a very vital piece in the Public Budgeting System process. It is an essential implement in the financial management practice and is effective in both public and private organizations. It is the method which consists of the determination and the evaluation of the investments and the possible expenses by an organization. As explicate by Lee, Johnson, & Joyce (2008), capital budgets help in determining how much of each form of investment is needed, and it supports an organization in assessing the available revenue which includes loans is required to finance those investments (p. 475). Capital budgeting is a central part of the universal

Capital budgeting is a long-term schedule that decides what investment projects to choose. When an option is selected, a company decides where and how to obtain the funds to support its investment and a way of determining the capital structure. A company should make sure it has access to working capital to maintain it operations daily. If this is not available, the company will not be able to maintain it daily operation until

A statement of Work (SOW) and work Breakdown Structure (WBS) is identified, which includes a hierarchical set of phases, activities and tasks that needs to be performed. After the WBS has been agreed, an assessment of the effort required to undertake the activities and tasks is made. The activities and tasks are sequenced, resources are allocated and a detailed project schedule is formed. This project schedule will become the primary tool for the Project Manager to assess the progress of the project.

Finance: Evidence from the Field” in the Journal of Financial Economics Vol. 60, 2001, pp. 187-243.

Capital Budgeting is the planning process used to determine whether an organization's long term investments are worth the funding of cash through the firm's capitalization structure.

a. Capital budgeting is the process of analyzing projects and determining which ones to accept and include in the capital budget.

The Lorie-Savage problem is a problem introduced in 1955 that addresses the issue in how to allocate capital (or resources) among competing investment opportunities with constraints on the available resources. (Lorie & Savage, 1955, p. 229) In defining this problem, Lorie-Savage structures it by outlining three separate scenarios:

This question covers an outline of the key developments in budgeting practice, discussion and analysis of the reasons why budgeting has been subject to considerable criticism, and an explanation of the roles that budgeting and budgets might play in an organization.

Capital Budgeting is a planning process that been used to determine whether an organization long term investment like new products, machinery, plants and research are worth to funding of cash through the firm capitalization structure such as debt, equity or retained earnings. Capital budgeting is a process of allocating company or organization resources for major investment, capital or expenditure. The goal of capital budgeting is to ensure that the value of the firm increase to the shareholder.

Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.

These decisions involve commitment of huge funds that too for a longer period which also changes the risk complexion of business. This decision, if undertaken judiciously, helps in providing the benefits of maximization of wealth not only for the concerned organization and industry but also for the economy as a whole. On the other hand, if this decision is not given its due importance, it will ultimately lead to the decline and demise of even a growing prosperous organization. Capital budgeting decision is considered to be the most important and crucial decision among the four decisions mentioned above because it, to a great extent, influences the survival, growth and value of a business enterprise. In the words of Porwal (1976), “Capital budgeting is one of the important vehicles to achieve objectives of a business concern”. Van Horne (1994) provides an argument according to which capital budgeting decision is the most important of the three decisions when it comes to the creation of value. It is considered under inorganic growth of an organization. Organic growth is brought about by daily investments in the business in terms of financial resources, hard work, careful investigations of quality, proper planning, serious team work, research and development, acquisition of technical knowhow etc. Inorganic growth in terms of acquisitions of new business may lead to quick growth without investments in any of the items mentioned above apart from financial resources. Capital

Organizations that decide to issue bonds generally have six steps to go through. Let’s discuss them.

In todays global market place every company or organization is looking for a way to get ahead of its competition. Every owner, CEO, or president is looking for away to keep his or her company or organization on solid financial ground. The one thing that they realize is, in order for a company or organization to stay solvent they will need to find away to stay competitive in this global market place. They have found that this may be done by some type of investment(s), in the form of acquisition, and or merger. In the world of business, capital budgeting is one of the most important steps that a company or organization can take. This process is called Capital budgeting. Capital budgeting is a process that attempts to determine the future. Before any large project begins, the capital budgeting process should be utilized. Without capital budgeting, your company could make a fatal mistake. A company or organization that is looking to invest its resources in a project without knowledge of the risks and returns involved could be seen as being reckless and irresponsible by its owners or shareholders. In the economic business world that we are currently in if a company or organization has no way of gauging the effectiveness of its investment most likely that the business will have little chance of surviving in a highly competitive marketplace (Clayman, Fridson, & Troughton, 2012).

According to Investopedia, capital budgeting is “the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing” (Investopedia, 2015). Capital budgeting is very important topic when managing a company and its finances. It could cause a significant amount of damage or it could further solidify the company’s foundation in their respective field. Companies have a variety of ways to manage their money and projects, whether is through qualitative analysis or information. This analysis or information may come from the cash inflow/outflow and the company’s assets.

This chapter introduces the significance of capital budgeting decision and its relation with other aspects of finance. Thereafter, it describes the current condition of power generation projects in India. Later it throws light on the need, scope and objectives of this research related to risk and capital budgeting practices in Indian public and private sector power projects. The organization of research and its limitations are discussed at the end of the chapter.