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  • Behavioral Factors in Capital Budgeting

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    Capital budgeting is the process of allocating funds for long-term projects or purchases involving large sums of money and fixed assets. There are several behavioral factors that can lead to faulty capital budgets, including problems identifying potential projects due to human behavior, short-term managers focusing on short-term performance, personal identification with projects biasing decisions, and differing risk preferences among managers and personnel. These behavioral factors can result in bankruptcy or cash flow problems if not addressed properly in the capital budgeting process.

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    Capital budgeting is the process of allocating funds for long-term projects or purchases involving large sums of money and fixed assets. There are several behavioral factors that can lead to faulty capital budgets, including problems identifying potential projects due to human behavior, short-term managers focusing on short-term performance, personal identification with projects biasing decisions, and differing risk preferences among managers and personnel. These behavioral factors can result in bankruptcy or cash flow problems if not addressed properly in the capital budgeting process.

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    6 views3 pages

    Behavioral Factors in Capital Budgeting

    Uploaded by

    MuhammadAliFaisal
    Capital budgeting is the process of allocating funds for long-term projects or purchases involving large sums of money and fixed assets. There are several behavioral factors that can lead to faulty capital budgets, including problems identifying potential projects due to human behavior, short-term managers focusing on short-term performance, personal identification with projects biasing decisions, and differing risk preferences among managers and personnel. These behavioral factors can result in bankruptcy or cash flow problems if not addressed properly in the capital budgeting process.

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    Behavioral Factors in Capital

    Budgeting
    Chapter 16
    Definition of Capital Budgeting
    • The process of allocating funds for long-term
    projects or purchases.
    • Large sums of money.
    • Fixed assets involved.
    • Faulty capital budgets:
    – Bankruptcy
    – Cash flow problems
    Types of Behavioral Factors
    • Problems in identifying potential projects.
    • Prediction problems caused by human behavior.
    • Problems of short-term manager and short-term
    performance measure.
    • Problems caused by self-identification with projects.
    • Personnel development and capital projects.
    • Risk-seeking and risk-averse behavior.
    • Sharing the poverty.

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