Capital Budgeting. NATURE OF CAPITAL INVESTMENTS  LARGE $ AMOUNTS INVESTED  PERMANENT  SET STRATEGIC DIRECTION  LONG PLANNING HORIZONS  ACCURATE.

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Presentation transcript:

Capital Budgeting

NATURE OF CAPITAL INVESTMENTS  LARGE $ AMOUNTS INVESTED  PERMANENT  SET STRATEGIC DIRECTION  LONG PLANNING HORIZONS  ACCURATE FORECASTS REQUIRED  VISIBLE MONUMENTS

ADMINISTRATIVE STEPS  IDENTIFY PROJECTS  COLLECT DATA  ANALYZE PROFIT AND RISK  GAIN REGULATORY APPROVALS  ARRANGE FINANCING  IMPLEMENT  CONTROL

CAPITAL BUDGETING TO OPTIMIZE PROFIT – AN EXAMPLE Project % R-of-R % C-of-C Mil. Of $'s Non-Discretionary A B C D E91210 F61240 G4125

CAPITAL BUDGETING TO OPTIMIZE PROFIT PERCENT PERCENT NON DISCRETIONARY A B C D E F G OPTIMUM CAPITAL BUDGET $565 MIL. MARGINAL COST OF CAPITAL INVESTMENT OPPORTUNITY SCHEDULE $