Capital Budgeting
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Capital budgeting is the process of identifying, evaluating, planning, and financing capital investment projects of an organization. It involves projects that require large sums of money and long time periods. The key steps are identifying potential projects, estimating costs and benefits, evaluating proposed projects, and developing a capital expenditure budget. Projects can be for replacement, improvement, or expansion. Various discounted cash flow methods and payback methods are used to evaluate projects based on factors like net investment, net returns, and cost of capital.
Capital Budgeting
- 1. Joy Kenneth Sala Biasong, D.M., Ed.D., Ph.D. Resource Person
- 2. Definition process of identifying, evaluating, planning and financing capital investment projects of an organization. It involves capital investment projects which require large sum of outlay and involve a long period of time-longer than the usual cut-off one year or normal operating cycle. ( R. Roque)
- 4. Identifying Potential Projects Estimating Costs and Benefits Evaluating Proposed Projects Developing Capital Expenditure Budget Reevaluating the Projects
- 5. Replacement Improvement Expansion
- 6. Capital Investment Factors Net Investment Net Returns Cost of Capital Economic Life Terminal Values
- 7. Payback Method Bail-Out Method Discounted Cash Flow Methods
- 8. Net Present Value Method Profitability Index Net Present Value Index Present Value Payback Method Time-Adjusted Rate of Return Method Payback Reciprocal
- 9. Economic Conditions Growth Policies Risk Evaluation Availability of Funds
- 10. Illustrative Problems on Capital Budgeting (see excel files) Practice (Problem Solving)