REPLY to these 2 comments!

Respond by sharing whether you agree or disagree with their view of capital budgeting considerations. Is there further support you can offer on their consideration?

stacey

Good day everyone, today I would like to talk to you about capital budgeting. In the text, according to Hickmen (2013) capital budgeting is "an investment analysis in a corporate setting. It is a decision about how to best budget investment capital to create wealth with shareholders." As managers, we know and understand that capital budgeting can be hard. This is why we must take all information into consideration when we are making budgeting decisions. Some elements that should be accounted for are the quantitive and qualitive. With the quantitive (numeric) we must gather as much information as we can to estimate the amount of funds needed for capital expenditures. The financial statements should be reviewed so that we as managers, would know what would be good for long- term investments for the entity. Now, that we have an understanding of this, we can take the present value of future cash flow and deduct it from the initial investments, Leaving us managers with the net present value (npv). As for the qualitive part, an example would be planning a course of action. A course of action that would help a company would be going out into the community and getting feedback via surveys on making improvements. The management should also, evaluate their budget and what the best options would be for funding.

jaime w

A few advantages of the payback method, is its simplicity. Most companies will use a team of employees with varied backgrounds to evaluate capital projects. Using the payback method and reducing the evaluation to a simple number of years is an easily understood concept. It offers a chance to identify projects that provide the fastest return on investment is particularly important for companies with limited cash that need to recover their money as quickly as possible. .

The disadvantages of the payback method, is that ignores the time value of money. The cash inflows from a project may be irregular, with most of the return not occurring until well into the future. The payback model does not consider cash inflows from a project that may occur after the initial investment has been recovered. Most major capital expenditures have a long life span and continue to provide income long after the payback period.

Woodruff, J. (2015, Nov 4). Advantages and Disadvantages if Payback Capital Budget Method . Retrieved from Small Business: www.smallbusiness.chron.com