Capital budgeting is a major aspect of investment decision cs financial management notes
Capital budgeting is a major aspect of investment decision making process. Investment decisions and capital budgeting are considered as synonymous in the business world. Investment decisions are concerned with the question whether adding to capital assets today will increase the revenue of tomorrow to cover costs.
Thus investment decisions are commitments of monetary resources at different times in expectation of economic returns in future. Choice is required to be made amongst available resources and avenues for investment. As such investment decisions are concerned with the choice of acquiring real assets, over the time period, in a productive process. In making such a choice consideration of certain aspects is essential viz., need for investment, factors affecting decisions, criteria for evaluating investment decisions and selection of a particular alternative from amongst the various options available.
Thus, investment decisions encompass wide and complex matters involving the following areas:
– capital budgeting
– cost of capital
– measuring risk
– management of liquidity and current assets
– expansion and contraction involving business failure and re-organisations
– buy or hire or lease an asset.