wiz-icon
MyQuestionIcon
MyQuestionIcon
1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

A capital budgeting decision is capable of changing the financial fortune of a business. Do you agree? Why or Why not?

Open in App
Solution

Investment decision can be long term or short term. A long term investment decision is also called a capital budgeting decision. It involves committing the finance on a long term basis, e.g., making investment in a new machine to replace an existing one or acquiring a new fixed assets or opening a new branch etc. These decisions are very crucial for any business. They affect its earning capacity over the long-run, assets of a firm, profitability and competitiveness, are all affected by the capital budgeting decisions.

Moreover, these decisions normally involve huge amounts of investment and are irreversible except at a huge cost. Therefore, once made, it is almost impossible for a business to wriggle out of such decisions. Therefore, they need to be taken with utmost care. These decisions must be taken by those who understand them comprehensively A bad capital budgeting decision normally has the capacity to severely damage the financial fortune of a business.

flag
Suggest Corrections
thumbs-up
0
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Indirect Method
ACCOUNTANCY
Watch in App
Join BYJU'S Learning Program
CrossIcon