Capital budgeting is done by using various techniques. Furthermore, few of the important ones techniques that are useful for writing your assignment are discussed as below:
Funding Sources: Any excess amount of cash that is raised through equity capital or debt should be used in the process of project continuity. Furthermore, retained cash can also be utilized for the purpose of potential source of investment in a project.
Ranked Projects: A project that has traversed the fledging hurdles and has a high rate of profitability index are considered to rank the projects. Therefore, it is a widely implemented technique in order to classify the project is done on the criteria of profitability index.
Equivalent Annuity Method: It is used so as to access the cost of a project that brings out the same cash inflows. For instance, two projects with different life period can’t be compared on the basis of Net Present Value; and thus EAC method is the one which is the most accepted one.
Requirement for writing on Capital Budgeting
Reducing Sunk Costs: In order to avoid sunk cost, it is a difficult task so as to accomplish the bigger projects. Moreover, capital budgeting renders a chance in order to minimize the sunk cost by not making non-planned capital investments for the purpose of long term and also irreversible due to long term in nature. Hence, companies have to make informed decisions.
The Impact of long-term investments: Long-term investments have a huge impact on the organization in accordance for cash inflows and liquidity. Moreover, one wrong long-term investment will bring us to the failure of the entire firm.
High Amount of Money: Projects is considered in regard to the investments and makes the right decision. Furthermore, in order to complete the project lot of money required. Therefore, Capital budgeting is an important in such a case.
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