Types of Investment Decision

 Accept or Reject decision

 Ranking Of Alternative Investment Proposals
 Choice of mutually exclusive Project
 Expansion, Replacement and Diversification
decision
 Importance or Need For Capital
Budgeting:-
 Capital budgeting involves long term commitment of
funds in projects having reltively long gestation
period and as such this investment takes the form of
sunk costs. The investment, thus made can not be
reversed except at a considarable loss to the firm.
Besids, there is also the eliment of risk, and
uncertainty. As such , there has tobe very carefull
planning of investment project and this needs capital
budgeting. The long term implcation of capital
budgeetong decision, thus, make it quite important
 large amount of funds have to be raised from
the market at a cost for financing investment
proposals. It is necessary, therefore, that
earning s from this investment are adeque to
cover the cost of borrowing. This requires
careful study of the profitability of the of the
project which calls for capital budgeting.
 The firm should avoid high operating costs
and idealness of capital equipment this
essential to ensure adequate returen on
investment. Accordingly,
Types of Investmentinvestment
Decisionital dicision
should be based on careful calculation through
capital budgeting
 Capital budgeting are important for the
reputation the management as well. once
capital investment are made, there is an
expansion oof the capital base of the firm and
it is supposed to earn an adequeate rate of
return on the capital employeed and that is an
important indicater of its acheivement.
Aprudent capital budgeting dicision, thus,
becomes very important for the management.
 The impotant of capital budgeting, therefore,
lise in the fact that without a prudent capital
budgeting the policy the firm may find its self
in a chaodic state of affairs. If long run capital
inve stment are made on the bases hit and
miss judgement and not on the
consideration of the rate of return, the firm
may be fect with the a losing project with low
return at the cost for profitable ones.
 Capital budgeting, thus, is a vital for the
management because its brings home the fact
that before making long term investment and
commitment, the varous the alternative
proposals should be examined, appraised an
evaluated. As such capital budgeting has come
to be regarded one of the key areas of
managerial decision making.