Capital Budgeting : Managing A Company And Its Finances

This mini-case provides a review of the methodology and rationale associated with the various capital budgeting evaluation methods such as payback period, discounted payback period, NPV, IRR, MIRR,

There are different types of budgeting that businesses typically use and those include Operating budgets, Capital Budgets and there are many subtypes that exist because a budget can also be created for special events, the recruitment and retention of new staff, and to manage the advertising expenses and return on investments for a business (Demand Media, 1999-2012). According to Demand Media (1999-2012), "An operating budget outlines the total operating expenses and income for the organization, typically for the period of a fiscal year. Capital budgets evaluate the investments and assets of the business, and a cash budget shows the predicted cash flow in and out of the business over a period of time” (para.2 ). According to the Cost-Benefit Analysis (2012), “Capital budgeting has at its core the tool of cost-benefit analysis; it merely extends the basic form into a multi-period analysis, with consideration of the time value of money. In this context, a new product, venture, or investment is evaluated on a start-to-finish basis, with care taken to capture all the impacts on the company, both cost and benefits. When these inputs and outputs are quantified by year, they can then be discounted to present value to determine the net present value of the opportunity at the time of the decision” ("Cost-Benefit Analysis," 2012).

Capital planning and budgeting is a very vital piece in the Public Budgeting System process. It is an essential implement in the financial management practice and is effective in both public and private organizations. It is the method which consists of the determination and the evaluation of the investments and the possible expenses by an organization. As explicate by Lee, Johnson, & Joyce (2008), capital budgets help in determining how much of each form of investment is needed, and it supports an organization in assessing the available revenue which includes loans is required to finance those investments (p. 475). Capital budgeting is a central part of the universal

Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets.

Capital budgeting decisions involve investments requiring large cash outlays at the beginning of the life of the project and commit the firm to a particular course of action over a relatively long period of time. As such, they are costly and difficult to reverse, both because of: (1) their large cost and (2) the fact that they involve fixed assets, which cannot be liquidated easily.

Capital budgeting is the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Whereas capital rationing is the act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the budget.

Annotated Bibliography: The Impact of Healthcare Reform on Capital Budgeting Carolann Stanek University of Mary Annotated Bibliography: The Impact of Healthcare Reform on Capital Budgeting Burt, J.C. & Voss, J.Z. (2012). Capital spending in the current healthcare environment. Health Capital, 5(4).

Financial tools that help in making better financial decisions are the different types of budgets that we were introduced to and these comprise of comprehensive budgets which include Capital and operating budgets, alternative cash budgets, and specialized budgets. A crucial aspect of the budgeting process however involves constantly defining your goals, reconciling goals and data, creating the budget, monitoring outcomes and analyzing variances and, readjusting budget expectations and goals. This process helps one to assess whether their goals and projections makes sense or if they need to be changed or thrown out completely. A comprehensive budget is a budget that shows both the capital and operating budgets and it its purpose is to reflect

Finance: Evidence from the Field” in the Journal of Financial Economics Vol. 60, 2001, pp. 187-243.

a. Capital budgeting is the process of analyzing projects and determining which ones to accept and include in the capital budget.

Planning and control is a crucial process in company management, by which targets are achieved and the use of resources are made effective and efficient (John C, 1986). Budgeting is considered to be a useful technique in this process, aiming to give financial values to those plans and objectives that derived from company’s long-term strategies. (Hanninen, 2013).

Capital budgeting is the planning process used to determine whether the long term investments are worth funding. The most popular methods of capital budgeting are (i) Non-discounted cash flow criteria or (ii) Discounted cash flow methods. Payback period (PB) and Net present value (NPV) are the two methods used which fall into the above mentioned categories

Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.

This article mainly discusses the cost of capital, the required return necessary to make a capital budgeting project worthwhile. Cost of capital includes the cost of debt and the cost of equity. Theorist conclude that the cost of capital to the owners of a firm is simply the rate of interest on bonds.

The concept of capital budgeting is critical for the livelihood as it involves the guidance and control for the future success of the company.