Financia!

Management
Rohit Navnath More
Ty8BA
516
Hssigomeot No:4
p) what is Capita udqe ing ? Erplain techniqus
of Capital Bucin with s merits and
Timitations
’A) Capital Budg eting invest in two types
ij Any business tirm has to aSSes
of assets a)e he)d for Short term Fixes
for Short term, xed asset S ay
qrt he l
Qquirtd the or long - term
of Capital decision
) The systtn expenditur is employed
Budge ting which involve
to euale ate S,
Curept asse ts but
benifttS oveY a period of ime Jongey than

8)Techn iques
A) Non-- Diss Coun ted cash Flouw techniques
pay back petiod
The pay bak pernod AS a number oF year
which ini tal investnment made in q
recovY e
Capital bu dge Hnq proposal
Initial Invegt ment
payback nnual Cash TInflous
period
 2

*Merits

) I is and ready me Hod of ompoutr

a rough
Dumber o years ih cohich initiainveStnent
qre reco veYed.

i) The PBPiS easy fo com puter and

understand

i) The Dum bey of yeaS in aohich initial

gong to be 1eCo vertd
inNest ment is
1S Hno wn which fa ci la fes planning of
invest ment

Limitatio ns
The main limitahion, is prtsent value
ot money is not taken into CunSedy aHon
The Pv of money goes declining with
pa ssage of tmne ind there fore pyoe C
Cashinfloa Should be adjusted
this fecto ys
) Ayerac Rate af Return (ARR)
Ln this me thod Proiected net eroit
qttey inCome tax is Computed Poy
espected ite sf proposalL and iis
aVeYag e
of this
iS worlsed
net
out the
proft
per entage
average
 s (onpules which 9 ARR
to ivest mets
ARR= Praje (ted ueage zlremento
Ne Profts after gT

S) Discou oted Cash floe tehges:

The Net Pres e ðale S dffe rehce

between tota preseot volJe of Prected
Cash nfloS oristhg
ita esfmeots poposal.

P.v of Cash inflow Ibital Jvestment.

rate of reNn epreseots e

Rnterest rate eorne
.Cours USefl rfe,Ths Pate af sONt
q+ bich Npis beither posniue nor negatue.
NPN a (Rate
Pate Rotes.
Piffeence bewee
 Pz is defin e ern
at reqJred rote of
Cash bene fits
cosh ou+fàw of fouetsent. Ths
OP în jta)
fS yet anot ber ethod of eualuatth a
Stm eot Popasas..
of Casb zoflos
Inftio) Zovestneots

back Pertod :
3) Dis Coonte) Pay
I+ is perioð OF time reqred r (Omolave
etpected Cash flows frm an avestm ent
Cash Outflow.

DPBP = lat Penod wit, Pbso) ote vale ol Dis.Om

cash ow g+ end. oP Per. A
begative dscoonted +
Comlotwe Casb p'souttd c0sh flow
flow doifng Perço d 0fher