Capital budgeting essay
These reports will include capital expenditure progress reports, performance reports comparing actual performance against plans set and post completion audits. Though the sample firms are a small part of the total number of firms in China, they are still representative and usable for research.
If a small firm is considering investment in a new product line, future cash flows cannot be estimated directly from the past performance of the firm's current operations.
The survey questionnaires included such topics as quantitative investment evaluation techniques, risk assessment, discount rates, cost of equity capital, and capital rationing, which is similar with this study.
He concludes that discounted cash flow analysis is less valuable when the level of future cash flows is more uncertain. The tax effect is also considered.
The chart requires the amount of years that the firms think it will take to retrieve its investment. Similar research conducted by Block
Factors of capital budgeting
Each of the technique includes the estimation of the costs incurred, savings and the revenue earned inflow. Gitman and John R. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years Each part of this section is related to the corresponding section of questions in the questionnaire. Firms should choose projects that increase its value. Limited time and cost was also considered when choosing these sample firms. Furthermore, potential and actual capital budgeting success is determined by evaluation through forecasting and monitoring Seitz and Ellison, So it is important to discover the application of capital budgeting. To see how much the company 's interest has to finance for every dollar, by taking a weighted average The survey questionnaires included such topics as quantitative investment evaluation techniques, risk assessment, discount rates, cost of equity capital, and capital rationing, which is similar with this study. Capital budgeting decision is considered to be the most important and crucial decision among the four decisions mentioned above because it, to a great extent, influences the survival, growth and value of a business enterprise. These models could incorporate the softer measures into the decision process to some extent. However, there might be some limitations on the part of the managers in terms of their expertise or using any specialized machinery. The greatest problem with the traditional present value methods, however, is that the entire decision must rest upon quantifiable cash flows Zhang Suyun,
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