Capital Budgeting Decision : An Argument

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These decisions involve commitment of huge funds that too for a longer period which also changes the risk complexion of business. This decision, if undertaken judiciously, helps in providing the benefits of maximization of wealth not only for the concerned organization and industry but also for the economy as a whole. On the other hand, if this decision is not given its due importance, it will ultimately lead to the decline and demise of even a growing prosperous organization. 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. In the words of Porwal (1976), “Capital budgeting is one of the important vehicles to achieve objectives of a business concern”. Van Horne (1994) provides an argument according to which capital budgeting decision is the most important of the three decisions when it comes to the creation of value. It is considered under inorganic growth of an organization. Organic growth is brought about by daily investments in the business in terms of financial resources, hard work, careful investigations of quality, proper planning, serious team work, research and development, acquisition of technical knowhow etc. Inorganic growth in terms of acquisitions of new business may lead to quick growth without investments in any of the items mentioned above apart from financial resources. Capital
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