Corporate Finance: Traditional Capital Budgeting - Essay Example

Only on StudentShare

Extract of sample
Corporate Finance: Traditional Capital Budgeting

Management use various Capital budgeting techniques to make effective use of these resource to maximize firm’s value (Bennouna, Geoffrey & Marchant 2010). The key objective of an organization is to determine the investment required for expansion of the project, modernize the existing equipment to reduce the costs or to anticipate demand (Bennouna, Geoffrey & Marchant 2010). In order to make further investment, managers determine the payback period and accounting rate of returns of the long term investments (Harrison & John 2010). Though there are several Capital Budgeting Techniques, However this document shall emphasizes on significance and limitation of Traditional Budgeting Techniques (Bennouna, Geoffrey & Marchant 2010). It further comments on the statement that ‘the traditional capital budgeting techniques hold its project passively, it further states that traditional capital budgeting technique does not acknowledge the value management.’
Traditional capital Budgeting
Traditional Capital Budgeting aims to measure the future cash in flows and out flows of the investment, it mainly uses the discounted rate option (Harrison & John 2010). Therefore, it is essential for the management of an organization to consider four main components to value investment opportunities, that is, accounting rate of return, payback period, present value of the project and its real option (Trivedi 2002).
...
Download paper

Summary

Corporate Finance: Traditional Capital Budgeting
Introduction
Capital Budgeting is the process of planning of long term corporate project related to the investment decision of the organization.
Author : mbergstrom

Related Essays

William Hill Plc acquired 624 betting shops of Stanley Leisure – an Evaluation
The researcher states that there are different forms of growth approaches that companies generally follow. Typically if a company wants to make growth, then in such circumstances the company has two choices whether to go for an organic growth or to go for acquisition or a combination of both. For organic growth, the companies generally expand their business operations by opening up new branches, adding up new product lines etc. On the other hand, for acquisitions, the companies generally purchase an existing business such that the company owns that business and in this way it brings expansion...
10 pages (2510 words) Coursework
Capital budgeting practices in different countriesindustrial corporations
In today’s world of complex business process, corporate capital budgeting is one of the most important and critical decisions faced by the financial managers. In businesses individuals invests large sums of money which generate cash flow benefit over a period of more than one year. This is the crux of capital expenditures. The goods on which capital expenditures are made include purchasing of new equipments, acquiring of new technologies and that of launching research and development programs and so on. Along with these capital expenditures, a huge volume of cash outlays are involved with...
25 pages (6275 words) Essay
Capital Budgeting
There are various capital budgeting techniques which are used in evaluation of a project so to determine its viability they include; net present value, internal rate of return, profitability index, average rate of return, pay-back period and modified internal rate of return. Guillermo Furniture is faced with three investment situations, which are to continue with the current production, adopt high-tech production, or act as a broker. Therefore, there is need to ascertain which of the investment will yield the highest returns to the firm. In order to carry out efficient investment appraisal, we...
2 pages (502 words) Essay
Capltal Budgeting : Glazers Takeover Manchester United
The takeover of Manchester United football club by Glazer family of United States has been studied in details. What prompted and motivated Glazer to takeover Manchester United have also been studied. The process of financing of the takeover bid by Glazer has been mentioned in this study. Capital Budgeting Theories The future prospects of any firm or company depends on its efficient capital budgeting decisions. The competitive power of an organisation is also determined through its efficient capital budgeting decisions. Capital budgeting decision by firms relies on the fact of anticipating all...
9 pages (2259 words) Essay
Capital Budgetting Research Paper
This topic has various fields such as capital budgeting which acts as an instrument in the monetary and fiscal policy. The two policies are necessary in improving net worth in the economy of a country in order to enhance development. This is mainly achieved through the reliance of debts rather than from other convectional sources such as tax. Capital budgeting is introduced in the economy so as to reduce deficit caused when expenditure exceeds revenue. In addition, capital budgeting is also primarily concerned with investment in the economy within long-term assets. These assets can either be...
7 pages (1757 words) Research Paper
Finance (Corporate)
This meant to give each proposal a chance to convince the capital budgeting committee for approval. The initial project concerned expanding an existing Match My Doll Clothing line, which had a demonstrated record of accomplishment in the earlier period. The subsequent project initiated a fresh initiative referred to as New Doll Film/DVD, which applied an online software permitting users to tailor a doll’s characteristic to the customers’ specifications. This required calculation of the Net Present Value (NPV) of both ventures to discover which project is more lucrative. Simulation Process...
6 pages (1506 words) Essay
Critically appraise the application of traditional capital budgeting techniques.
At the same time, many business organizations failed to survive stiff market competition and subsequently went out of the market. The last decade witnessed a series of corporate scandals and bank failures due to poor managerial accountability and ineffective corporate governance practices. Hence, today’s managements give particular focus to corporate governance principles and long term business decisions. In this context, the concept of capital budgeting is of considerable significance because it evaluates future cash inflows and outflows on a prospective business project and thereby...
18 pages (4518 words) Assignment
Got a tricky question? Receive an answer from students like you! Try us!