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What is capital budgeting? What is its importance?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 preetham asked almost 3 years ago

Hi I am preparing for CA exam. I want to know about capital market. Can I know, What is capital budgeting? What is its importance?

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered over 2 years ago

Hi, The process of capital budgeting involves long term investment generation where they are more consistent with the long term objectives. It estimates the incremental cash flow which has been a proposals given to the project which is been considered after taking tax. After this the cash flows estimations takes place and then selection of the project takes place which maximize the shareholders' wealth.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered over 2 years ago

Capital budgeting is a process making system which is used to select and evaluate long term investments that is fixed assets investigation. It requires initial outlay and it also expect to produce the benefits and result over a period of over a year. The importance of capital budgeting is that the proper decision can be made after seeing the capital budget increases the firm's value and also the shareholders' wealth. It is a critical measuring tool for a company which helps the firm to stay in competition as the expansion of the business takes place for example purchasing of equipments to produce additional and new products.

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Picsjoin 2017224123730582 Archana answered almost 3 years ago

Hie Preetham, - Capital budgeting is a step by step process that businesses use to determine the merits of an investment project. The decision of whether to accept or deny an investment project as part of a company's growth initiatives, involves determining the investment rate of return that such a project will generate. However, what rate of return is deemed acceptable or unacceptable is influenced by other factors that are specific to the company as well as the project. For example, a social or charitable project is often not approved based on rate of return, but more on the desire of a business to foster goodwill and contribute back to its community. - Capital budgeting is important because it creates accountability and measurability. Any business that seeks to invest its resources in a project, without understanding the risks and returns involved, would be held as irresponsible by its owners or shareholders. Furthermore, if a business has no way of measuring the effectiveness of its investment decisions, chances are that the business will have little chance of surviving in the competitive marketplace. - Businesses (aside from non-profits) exist to earn profits. The capital budgeting process is a measurable way for businesses to determine the long-term economic and financial profitability of any investment project.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 jitendra etikala answered almost 3 years ago

> What is capital budgeting? What is its importance? Capital budgeting is a process making system which is used to select and evaluate long term investments that is fixed assets investigation. It requires initial outlay and it also expect to produce the benefits and result over a period of over a year. The importance of capital budgeting is that the proper decision can be made after seeing the capital budget increases the firm's value and also the shareholders' wealth. It is a critical measuring tool for a company which helps the firm to stay in competition as the expansion of the business takes place for example purchasing of equipments to produce additional and new products. **What is the process of capital budgeting?** The process of capital budgeting involves long term investment generation where they are more consistent with the long term objectives. It estimates the incremental cash flow which has been a proposals given to the project which is been considered after taking tax. After this the cash flows estimations takes place and then selection of the project takes place which maximize the shareholders' wealth.

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