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Capital Budgeting: Financial
Appraisal of Investment Projects
Welcome to the Power Point Presentation
Chapter 1
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Introduction
•Chapter 1 introduces the concept of capital
budgeting, and sets out the structure of the
book.
•The important points are:
Capital budgeting is the most significant
financial activity of the firm.
Capital budgeting determines the core
activities of the firm over a long term future.
Capital budgeting decisions must be made
carefully and rationally.
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Capital Budgeting Within The Firm
T h e P o s i t i o n o f C a p i t a l B u d g e t i n g
C a p i t a l B u d g e t i n g
L o n g T e r m A s s e t s
S h o r t T e r m A s s e t s
I n v e s t m e n t D e c i s o n
D e b t / E q u i t y M i x
F i n a n c i n g D e c i s i o n
D i v i d e n d P a y o u t R a t i o
D i v i d e n d D e c i s i o n
F i n a n c i a l G o a l o f t h e F i r m :
W e a l t h M a x i m i s a t i o n
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Examples of ‘Long Term Assets’
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Aspects of Capital Budgeting
Capital Budgeting involves:
Committing significant resources.
Planning for the long term: 5 to 50 years.
Decision making by senior management.
Forecasting long term cash flows.
Estimating long term discount rates.
Analyzing risk.