August 2011
Beginner
547 pages
16h 12m
English
Content preview from Fundamentals of Financial Management, Third EditionBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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5.1 NATURE OF CAPITAL BUDGETING
5.1.1 Meaning and Significance
Capital budgeting relates to long-term investment in fixed assets. Capital refers to long-term assets used in production. The budget is a plan detailing projected inflows and outflows of cash during a specific future period. It is different from an operating budget in that it usually involves a number of years, while an operating budget is confined to one fiscal year.
Capital budgeting decisions are significant for a firm. First, fixed assets account for a sizeable proportion of the firm’s total assets and their life extends over a considerable number of years. If wrong decisions are taken, the amount of loss will be colossal. Second, long-term assets are usually specialised. This ...
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