Concept of Capital Budgeting Assignment Help

Capital Budgeting Assignment Help Concept of Capital budgeting

According to Finkler & McHugh (2008), capital budgeting is mainly used by companies in order to plan the

acquisition of long-term investments. In simple terms, it can be defined as firm’s decision for investing its current funds most efficiently and effectively in the long-term assets to earn more benefits over a series of years. This definition highlights three main features of capital budgeting decisions such as investment of funds in long-term assets, use of current funds for attaining future benefits and occurrence of future benefits for a firm over a series of years (Crundwell, 2008).

Generally, company’s capital budgeting decisions include acquisition, expansion, modernization and replacement of the long-term assets. The decision to undertake a capital budgeting project involves capital goods purchase such as equipment, long-term investment, etc. Capital goods are business assets, which have an expected life of more than one year. It is the reason that capital budgeting decisions, which involve investment in fixed assets, are come under fixed assets head in balance sheet (Baker & Powell, 2009). Similarly, if these decisions are based on long-term investment, they come under investment head in balance sheet.

Concept of Independent Projects For making capital expenditure decisions, generally a firm encounters two types of projects; independent projects and mutually exclusive projects. Independent projects are those, in which acceptance or rejection of one project does not directly eliminate other projects from consideration (Moyer, McGuigan, Rao & Kretlow, 2012). On the other hand, in mutually exclusive projects, acceptance of one project precludes the acceptance of other projects. It is because mutually exclusive projects have the capacity to perform the same function for a firm, thus only one project can be chosen. In this way, capital budgeting decisions in independent projects require yes/no decisions, while mutually exclusive projects require either/or decisions. As per capital budgeting finance case study assignment help experts, Independent project’s cash flow are not affected by the accept/reject decision for other projects and it is the reason that all independent projects that meet capital budgeting criteria can be accepted by the company (Finkler & McHugh, 2008). In contrary to this, in mutually exclusive projects, only one project can be selected, as they are to accomplish the same task, thus, one best project is selected by the company (Crundwell, 2008).  Different capital budgeting techniques such as NPV, IRR and PI give same acceptance or rejection decisions regarding independent projects, but conflict can arise in case of mutually exclusive projects due to difference in ranking under different techniques.

Difference between Normal and Non-Normal Projects Normal projects refer to those projects, which have normal cash inflows, while non-normal projects are associated with non-normal cash flows. In normal cash flows, the initial cash outflows are followed by a series of cash inflows. On the other hand, in situation of non-normal cash flows, a project calls for a large cash outflow either during or at the end of its life (Smith, 2012). Normal projects have only one change in sign because they begin as negative cash flows, change to positive cash flows and then remain positive. In contrary to this, non-normal projects have more than one change in sign due to non-normal cash flows. For example, a project begins with negative cash flows, switch to positive cash flows and then switch back to negative cash flows. Thus, cash flows have two sign changes, first negative to positive and positive to negative. It is the reason that use of IRR approach may not be reliable for non-normal projects because due to non-normal cash flows these projects have multiple IRRs or two or more IRRs (Brigham & Daves, 2009). We ensure you that your capital budgeting assignment help content would be authentic, original, 100% correct and according the assignment guidelines. So, hurry up and please e-mail us your any assignment help at