several second posts, reacting to sevel substantive your second posts, the more
ID: 2785790 • Letter: S
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several second posts, reacting to sevel substantive your second posts, the more credit you will earn This week we are covering the topic of capital budgeting From our readings and your knowledge, explain what capital budgeting is? Why is this important for a company? What errors might a company make when considering capital budgeting? Finaly, from your perspective as a student, what type of capital budgeting decisions do you have to make? Which approach, if any, do you use to make your decisions? Has this worked for you? Your first response is due on Wednesday, Nov. 15th by 11.59 pm. on two classmates post, is due on Saturday, Nov. 18 Your second response, comments Displaying 1 to 12 orExplanation / Answer
Answer:
Capital budgeting is a process which a company use to make decisions that they should opt for a particular project or not.
It also tells the Company which project to choose from a list of projects to go ahead with in case of mutually exclusive projects
it is very important for a company to have a sound capital busgeting process as it creates an accountability and measurebility. it is really important in todays time for a business to understand the risk and returns involved in going for any kind of investment. if an organiation doesnt do this it would be held irresponsible by shareholders and would reflect in their share prices on the stock markets as well
There are two types of error a company can make while doing capital budgeting:
type 1 error : when you dont commit to a project that turns out to be profitable
type 2 error: when you commit to a project and it turns out to be loss making
type 2 error is far more serious as it results in real loss for your company
In our day to day life we make a lot of decisions which are based on captal budgeting. Which car to buy to travel is one such example, where we make decision to go for a new one or buy an old one regarding the money we have and the return we seek.
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