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Capital Budgeting Discussion Questions: How do we really know if a project is a good...

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Finance

Capital Budgeting Discussion Questions: How do we really know if a project is a good project? There are questions and predictions in evaluation, such as issues of scope, duration, estimation, application of MARR for existing versus new businesses, new geography. Multi division firms have diverse requests for capital across many businesses. What about maintenance capital versus expansion capital. Also, how do you know if the IRR determined for a project is accurate enough?

We want you to ask the right people in your organization about the process you use for assessing projects. Which measures of economic efficiency are used? How important is the use of "evaluation guidelines" on inflation assumptions, industry growth rates, etc. to put capital budget requests on the "same page" as far as business assumptions that require a common basis for accurate comparison of capital requests? Does your firm have a formal documentation requirement and a post audit process? Contrast and compare your firm's process to your learning in the course. What are the strengths and weaknesses? How would you improve the process?

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