Week 4 Post 3 Review minimum of 150 words
1.) Capital budgeting is a plan to see if an investment, or purchase, is going to be worth money spent.
2.) ” Capital budgeting is a tool for maximizing a company’s future profits since most companies are able to manage only a limited number of large projects at any one time.” (Averkamp, H.) Basically, the company uses this planning approach to look into the purchases of equipment and/or machinery to see if the investment will produce better figures on the time value of money.
3.) The way that they differed is how they incorporated the budgeting with the business plan, which is to make shareholders money. By only accepting proposals that produce a rate of 15% or more, they are all but guaranteeing to see profits on the rise. This in turn makes the investors money.
4.) The new approach is combining the business plan with the budgeting plan. This helps to reduce the time it takes to prepare details of the different processes as well as build better support for the project or objective.
5.) One way that the project can be dropped is if it is not meeting the 15% rate of return criteria. This means that the value for the shareholders is not increasing, and this can stop aa project dead in its tracks. As long as the company continues to see an increased rate of return, then the project will continue to move forward.
Averkamp, H. What is capital budgeting? Accounting Coach. Retrieved from https://www.accountingcoach.com/blog/what-is-capital-budgeting