1. Capital Budgeting
Unit :II
Financial Management

2. CAPITAL BUDGETING
Capital budgeting is the process of making investment decisions regarding capital expenditures.
Any expenditure incurred which tends to improve existing fixed assets so as to increase the profitability or reducing the cost of production may be called as capital expenditure.
Financial Management

3. Definition
According to Lynch, ”Capital budgeting consists in planning,development of available capital for the purpose of maximizing the long term profitability of the concern”.
Financial Management

4. Importance of capital budgeting
Heavy Investment
Permanent commitment of funds
Long term effect on profitability
Irreversible in nature
Wrong sales forecast may lead to over or under investment of resources.
Financial Management

5. Types of Capital expenditure
It is of two types:
Capital expenditure that increases the revenue
Capital expenditure that reduces the cost
Financial Management