Capital Budgeting Essay

2628 Words Nov 27th, 2006 11 Pages
Capital Budgeting
Introduction
Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing owner wealth. A firm using capital budgeting, their goal is to see if there fixed income will cover itself for profit. Fixed incomes are things such as land, plant and equipment. When a firm using a machine to produce its good or service. They most of the time what the machine to produce the amount that they paid for the machine and more. The capital expenditure is the outlay of fund that a firm expects to produce and benefit with in a one year.
The Capital Budgeting Process When approaching the problem of trying to the measure capital budgeting. The first step
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This information contributes to an understanding of a department's operation and the issues it faces. The abilities of current equipment. An assessment of a department's current equipment involves collecting data about the equipments' condition, operation, repair record, current age, and so forth. The abilities of new or replacement equipment. Similar data also are gathered for new, emerging technologies or on new models that will replace existing equipment. An integrated process of capital budgeting and technology assessment can help capital budgeting committees allocate scarce capital resources to acquire equipment that best matches the needs of the hospital. The capital budgeting process provides a framework for decision making, and within this framework, technology assessment works both as a process and as an input to the capital budgeting process. Technology assessment thus becomes an extension of the capital budgeting process.
BUSINESS vs PRIVATE
Despite certain similarities, the differences between the way capital budgeting is done in the private sector and governmental budgeting are often great and in several respects decisive. In the first place, most private entities employ multiple budgets: capital budgets, operating budgets, and cash budgets. Private-sector capital budgeting is concerned only with decisions that have significant future consequences. Its time horizon is the life of the decision; its focus is the

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