Typical Capital Budgeting Decisions:

Learning Objectives:

1. What type of business decisions require capital budgeting analysis?

What types of business decisions require capital budgeting analysis? Business decisions that require capital budgeting analysis are decisions that involve in outlay now in order to obtain some return in the future.

This return may be in the form of increased revenue or reduced costs. Typical capital budgeting decisions include:

1. Cost reduction decisions. Should new equipment be purchased to reduce costs?
   
2. Expansion decisions. Should a new plan, warehouse, or other facility be acquired to increase capacity and sales?
   
3. Equipment selection decision. Which of several available machines should be the most cost effective to purchase?
   
4. Lease or buy decisions. Should new equipment be leased or purchased?
   
5. Equipment replacement decisions. Should old equipment be replaced now or later?

You may also be interested in other articles from “capital budgeting decisions” chapter:

1. Capital Budgeting – Definition and Explanation
2. Typical Capital Budgeting Decisions
3. Time Value of Money
4. Screening and Preference Decisions
5. Present Value and Future Value – Explanation of the Concept
6. Net Present Value (NPV) Method in Capital Budgeting Decisions
7. Internal Rate of Return (IRR) Method – Definition and Explanation
8. Net Present Value (NPV) Method Vs Internal Rate of Return (IRR) Method
9. Net Present Value (NPV) Method – Comparing the Competing Investment Projects
10. Least Cost Decisions
11. Capital Budgeting Decisions With Uncertain Cash Flows
12. Ranking Investment Projects
13. Payback Period Method for Capital Budgeting Decisions
14. Simple rate of Return Method

15. Post Audit of Investment Projects

16. Inflation and Capital Budgeting Analysis
17. Income Taxes in Capital Budgeting Decisions
18. Review Problem 1: Basic Present Value Computations
19. Review Problem 2: Comparison of Capital Budgeting Methods
20. Future Value and Present Value Tables