capital budget 1

Topics: Net present value, Investment, Finance Pages: 2 (840 words) Published: February 24, 2014
Critically reflect on the importance of capital budgeting.  Why is this heated subject in many boardrooms? How does capital budgeting promote the financial health of an organization? How will you use the financial techniques you have learned this week to promote the financial health of your organization? A capital budget is very important for a business. It is a heated subject because a decision about capital budgeting can help the business to determine if the proposed investments or project are worth taking or not. There are two things that a business has to take into consideration when it is making a capital budget decision. First there are financial decisions that have to be made. Second, there is an investment decision that is also made. When the business decided on the investment for a project that they will want to buy with their fund in order to help their business grow; therefore, in order for the business to invest it has to look at the available funds and bottom line of that project. For a budget there are costs to take into consideration in order to begin the project. The business must know how much money it has on hand or avaible so that it can invest into the project and begin working on it. Depending on the investment or project the business might have the funds needed or might have to get other help from outside sources. There are many things that go into an investment for a project. Businesses have to be committed and realize that there are a number of risks that come with any type of investment. Also, the project could cost a lot of money and it will have to deal with certain restrictions that are set with regulations. In most cases, the decision makers will be held accountable for whatever risks or returns that company might come across. As a result, those who are making the decisions would have to answer to their owners or shareholders if things do not go according to plans. It is important that the business can pay for any new...
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