Capital Budgeting Decision Process
Capital Budgeting Decision Process
1. Introduction The maximization of shareholder wealth can be achieved through dividend policy and increasing share price of the mark value. In order to derive more profits, our company shall invest potential investments which always cover a number of years. Those investments involve substantial initial outlay at the outset and the process. The management is responsible to participate in the process of planning, analyzing, evaluating, selecting and making decisions to allocate the limited resource to those investments. This is called capital budgeting decision process. Budgeting acts as an important managerial tool in practice. It is budget for the major capital investment such as purchase of land and building, plant and machine, investing new product or market. In modern competing environment, the company shall go ahead to make those investments in order to survive and profitability. A good evidence is Apple which globally introduced iPhone and acted as a leading market position. Denzil & Antony (2007) stated that “Those decisions shall take account of the amount, timing and associated risk of expected company cash flow”. Therefore, Capital budgeting decision process is within the prospective of financial management.
2. The Aims of Financial Management Finance management generally embraces financial decision, investment decision and dividend decision. Its aims can be varied from different company, the main aims are expanding a new market, budgeting control, maximizing profit and maximizing shareholder wealth. Keown, et all stated that “The fundamental goal of a business is o create value for the company’s owners (this is, its shareholders)”. However, the management may focus on profit maximization that will benefit him because he is the agent on behalf of the shareholder resulting in devoicing ownership and management from the company. It leads to conflict with the shareholder’s interest
1. Introduction The maximization of shareholder wealth can be achieved through dividend policy and increasing share price of the mark value. In order to derive more profits, our company shall invest potential investments which always cover a number of years. Those investments involve substantial initial outlay at the outset and the process. The management is responsible to participate in the process of planning, analyzing, evaluating, selecting and making decisions to allocate the limited resource to those investments. This is called capital budgeting decision process. Budgeting acts as an important managerial tool in practice. It is budget for the major capital investment such as purchase of land and building, plant and machine, investing new product or market. In modern competing environment, the company shall go ahead to make those investments in order to survive and profitability. A good evidence is Apple which globally introduced iPhone and acted as a leading market position. Denzil & Antony (2007) stated that “Those decisions shall take account of the amount, timing and associated risk of expected company cash flow”. Therefore, Capital budgeting decision process is within the prospective of financial management.
2. The Aims of Financial Management Finance management generally embraces financial decision, investment decision and dividend decision. Its aims can be varied from different company, the main aims are expanding a new market, budgeting control, maximizing profit and maximizing shareholder wealth. Keown, et all stated that “The fundamental goal of a business is o create value for the company’s owners (this is, its shareholders)”. However, the management may focus on profit maximization that will benefit him because he is the agent on behalf of the shareholder resulting in devoicing ownership and management from the company. It leads to conflict with the shareholder’s interest