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Capitol Budgeting Long Term Financing
Finance & Accounting
Pages 3 (753 words)
REASONS WHY CAPITAL BUDGET IS GIVEN ATTENTION Name Prof Institution Subject Code Date of Submission Introduction The future survival and productivity of almost all business entities from small to big, Public Companies to privately owned firms and largest international corporations depend on the well judged acquirement, maintenance, and disposal of capital assets.
Capital assets receive attention because they commit a firm for long term. These capital assets are commitment of over a year and sometimes for decades for instance, real estate. Economically, the resources being scarce and competitive in nature, there would be wrong allocation of such resources at the wrong time or on a non rewording asset. Assets acquisition analysis According to (Baker, & Powell, 2005) any company will invest finance for the sake of gaining a return which is useful for four focal reasons: 1. To recompense the shareholders or owners of the enterprise for staking their money and by sacrificing their current purchasing power for the sake of current and future cash flow 2. To reward lenders by paying them regular return on their money borrowed in the form of interest and principal repayment as and when it falls due. 3. To be able to plough back retain part of their earnings for the purpose which facilitates not only the companies’ short term growth and long term growth but also has the implication of increasing the size of the company in terms of sales, in assets as well as shareholders wealth. 4. To increase the share prices and thus the credibility and goodwill of the company and its capability to raise further finance. ...
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