Presentation on types of capital budgeting decisions

This presentation highlights the different types of capital budgeting decisions.

1. Presented by: Ms. Komal Mahajan Assistant Professor in Commerce PRESENTATION ON KINDS OF CAPITAL BUDGETING DECISIONS

2. Capital budgeting decisions Capital Budgeting Decisions refer to the decisions regarding long term investment of huge amounts i.e. Capital expenditure in the projects which will prove fruitful for the business and provide the required returns in the future years with least possible cost.

3. Kinds of capital budgeting decisions

4. i. On the basis of purpose Expansion Projects Replacement Projects Diversification Projects Modernization Projects Research & Development Projects Environmental Projects

5. Expansion Projects are the projects where capital expenditure is made on installation of new plant and machinery, establishment of new factory, starting a new product line in the existing industry etc. These projects add to the earning capacity of a company. 1. Expansion Projects

6. Replacement Projects are the projects where capital expenditure is made for the replacement of the existing facilities, assets etc. which have become useless or lesser productive with the passage of time, continuous use, obsolescence of technology or other such reasons. 2 . Replacement Projects

7. D iversification Projects are the projects where capital expenditure is made on installation of new plant and machinery, establishment of new factory, starting a new product line in the industry other than the existing one etc. These projects add to the earning capacity of a company and reduces the risk of losses too. 3. Diversification Projects

8. Modernization Projects are the projects where capital expenditure is made on installation of new plant and machinery , buying new modern equipment etc. to avoid the losses due to obsolete technology or obsolete equipment being used in the business. These projects add to the efficiency of the company and thus gives the competitive edge. 4 . modernization Projects

9. Research and Development Projects are the projects where capital expenditure is made on development of new technologies, products, equipment etc. due to the changing technological trends. These projects gives the competitive edge to the company. 5. Research & development Projects

10. Environmental Projects are the projects where capital expenditure is made on improvement of working environment, pollution control, provisions of safety etc. These projects enhances the goodwill of the company rather than giving direct benefits in the form of profits. 6. Environmental Projects

11. iI . On the basis of effect on profitability Projects increasing revenue Projects reducing costs

12. These projects bring more and more revenue to the firm through expansion, diversification etc. 1 . Projects increasing revenue

13. These projects are undertaken to reduce the costs through replacement, modernisation etc. 2. Projects reducing costs

14. iII . On the basis of DECISION SITUATION Mutually Exclusive Projects Independent Projects Dependent Projects Capital Rationing

15. These projects are the projects meant for achieving the same purpose thus competing for funds in such a way that acceptance of one project means rejection of other project. These are either-or projects. 1 . Mutually exclusive projects

16. These projects are the projects meant for achieving different purposes. The acceptance of one project does not mean rejection of other project. 2. Independent projects

17. These projects are the projects meant for achieving same purpose. The acceptance of one project will mean acceptance of other project too. These are also known as Complimentary Projects. 3 . dependent projects

18. Capital rationing is the situation where a firm has to choose combination of profitable projects yielding the highest Net Present Value with available funds. 4. Capital rationing

19. Thank You!