Capital Budgeting

Capital Budgeting

"Capital Budgeting describes the firm's formal planning process for the acquisition and investment of capital." - John J. Hampton

"Capital Budgeting is the long-term planning decisions for making and financing proposed capital out lays." - Horngren

"Capital Budgeting is the allocation of long term funds available o the firm among long term potential uses." - George A. Wing

Read: Dividend Policy

"Capital Budgeting is identifying, analyzing and selecting investment projects whose returns (cash flows) are expected to extend beyond one years." - James C. Van Horne

"Capital Budgeting may be defined as the firm's decision to invest its current funds most efficiently in long term a activities in anticipation of an expected flow of future benefits over a series of years" - I. M. Pandey

"Capital Budgeting is the process of evaluating and selecting long term investment consistent with the firm's goal of owners wealth maximization." - L. J. Gitman

Pay Back Period:

Pay Back Period is the estimated time by which the original invested capital in a project can be recovered.

Net Present Value:

" The net present value is found by subtracting a projects initial investment from the present value of its cash inflows discounted at a rate equal to the firms cost of capital." - L. J. Gitman

"NPV may be described as the summation of the present values of cash proceeds (CFAT) in each outflows in the each year." - Khan and Jain

"The NPV equals the present value of the cash inflows minus the present value of cash outflows with the cost of capital used as a discount rate." - Block and Hirt

Internal Rate of Return:

"Internal Rate of Return is the discount rate that equates the present value of cash inflows with the investment associated with a project." - L. J. Gitman

"IRR is defined as the discount rate (R) which equals the aggregate present value of the net cash inflows (CFAT) wth the aggregate present value of cash outflows of the project." - Khan and Jain

"The internal rate of return is that discount rate that will cause the net preasent value of a project to be equal th zero." - Garrison and Noreen

Profitability Index:

"A measurement of the profitability of an investment computed by dividing the net present value by the initial cost of investment." - Schall and Haley

"Profitability index may be defined as the ratio which obtained dividing the present value of cash outflows." - Khan and Jain

Conflicting Ranking:

"Conflicts in the ranking given a project by NPV and IRR, resulting from differences in the magnitude and timing of cash flows."
- L. J. Gitman

Risk:

"Risk is the probability that the firm will be unable to pay its bills as they come due." - Lawrance J. Gitman

Financial Risk:

"The portion of stock holders risk over and above basic business risk, resulting from the use of financial average." - Weston and Brigham

Scenario Analysis:

"A scenario analysis is a risk analysis techniques which 'bad' and 'good' sets of financial circumstances are compared with most likely situation." - Prof. Besley and Brigham