Essays on Aspects and Techniques of Capital Budgeting Coursework

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The paper 'Aspects and Techniques of Capital Budgeting" is a good example of finance and accounting coursework.   Capital Budgeting is an exceptionally significant aspect of the financial management of a firm. Although the capital assets usually comprise a smaller percentage of their total assets than the current assets, capital assets are perceived to be long-term. Consequently, a firm that indulges into a mistake within its capital budgeting process is forced to live with such a mistake for quite a long period of time. This defines capital budgeting as the process through which a business evaluates whether or not investing in projects such as developing a new plant or in the long-term ventures are worthy of pursuit.

It involves assessing the cash inflows and outflows of a prospective project’ s lifetime so as to if the returns generated are able to meet a satisfactory target benchmark (Levy & Marshall, 1994). Capital budgeting, which is also referred to as investment appraisal is vital in marketing decisions. For instance, decisions on investments that considerably takes a long time to mature need to be determined on the basis of the returns for which that particular investment will make.

This suggests that unless the project is intended for social reasons, if that investment emerges to be unprofitable within the long run, then it becomes risky to invest in it. Since the concepts of capital budgeting are considered as a managerial tool, it becomes important to note that one of the major duties of a manager is to select investments that have satisfactory cash flows, rates of return as well as worth undertaking with the ability to choose wisely from two or more alternatives.

Therefore, in order to achieve this, a sound procedure is required to select, compare and evaluate a project to invest in, and thus the need to undertake capital budgeting (Emery, Finnerty & Stowe, 1998).   Capital budgeting projects such as the potential long-term investments generate cash flows for several years. Therefore, the decision to either accept or reject a given capital budgeting project is dependent upon the analysis made on the cash flows that are generated by a project and the associated costs. Payback Period, Net Present Value and Internal Rate of Return are the key decision rules used in capital budgeting.

This implies that a capital budgeting decision rule is expected to satisfy criteria such as take note of the entire cash flow of a project, the Time Value of Money as well as be on the lead to make the right decisions when it comes to choosing among the mutually exclusive projects.

References

Dayananda, D., (2002). Capital Budgeting: Financial Appraisal of Investment Projects. Cambridge University Press.

Droms, W., (1997). Finance and Accounting for Nonfinancial Managers: All the Basics You Need to Know, Perseus Books.

Emery, D.R., Finnerty, J.D & Stowe, J.D., (1998). Principles of Financial Management. Upper Saddle River, NJ: Prentice Hall.

Harvey, A., (2005). Capital Budgeting Decisions: A survey of Latin American Practices, in Harvey Arbelaez and Reid William Click (ed.) Latin American Financial Markets: Developments in Financial Innovations (International Finance Review. Emerald Group Publishing Limited. 5, 45-61

Kent Baker, H., (2011). Capital Budgeting Valuation: Financial Analysis for Today's Investment Projects, An essential guide to valuation techniques and financial analysis. John Wiley and Sons.

Levy, H., & Marshall, S., (1994). Capital Investment and Financial Decisions. 5th ed. New York: Prentice Hall.

Pamela, P and Fabozzi, J.F, (2002).Capital Budgeting: Theory and Practice. John Wiley and Sons.

Pinches, G.E., (1996). Essentials of Financial Management. 5th ed. New York: HarperCollins.

Rye, D.E. & Hickman, C.R. (1997). Starting up: an interactive adventure that challenges your entrepreneurial skills. Paramus. Prentice Hall.

Sidney, W & Peter, O., (2006). A commentary on “Why DCF capital budgeting is bad for business and why business schools should stop teaching it.” Accounting Education. 15(1), 25-28.

Scott, D.et al. (1999). Basic Financial Management. Upper Saddle River, NJ: Prentice Hall.

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