Question 5 – Explain capital budgeting in your own words. Explain one capital budgeting method in...

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Finance

Question 5 – Explain capital budgeting in your own words.Explain one capital budgeting method in detail and how OrganicProduce Corporation’s weighted average cost of capital affectscapital budgeting decisions.

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WHAT IS CAPITAL BUDGETING Capital budgeting is a companys formal process used for evaluating potential expenditures or investments that is usally significant in amount It involves the decision to invest the current funds for addition disposition modification or replacement of fixed assets The large expenditures include the purchase of fixed assets like land and building new equipments rebuilding or replacing existing equipments research and development etc The large amounts spent for these types of projects are known as capital expenditures Capital Budgeting is a tool for maximizing a companys future profits since most companies are able to manage only a limited number of large projects at any one time usually involves calculation of each projects future accounting profit by period the cash flow by period the present value of cash flows after considering time value of money the number of years it takes for a projects cash flow to pay back the initial cash investment an assessment of risk and various other factors FEATURES OF CAPITAL BUDGETING 1 It involves high risk See Answer

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