Tuesday, May 14, 2019

Capitol Budgeting Long Term Financing Assignment

Capitol Budgeting Long Term Financing - Assignment ExampleCapital assets have got attention because they commit a firm for long term. These capital assets be commitment of over a year and sometimes for decades for instance, real estate. Economically, the resources being scarce and competitive in character, there would be damage allocation of such resources at the wrong time or on a non rewording asset. Assets achievement analysis According to (Baker, & Powell, 2005) any fellowship go away invest finance for the sake of gaining a generate which is useful for four focal reasons 1. To recompense the contendholders or owners of the enterprise for staking their money and by sacrificing their current get power for the sake of current and future cash flow 2. To reward lenders by paying them firm return on their money borrowed in the form of interest and principal repayment as and when it falls due. 3. To be able to plough back retain part of their earnings for the purpose which f acilitates not merely the companies short term growth and long term growth but besides has the implication of increase the size of the company in terms of sales, in assets as well as shareholders wealth. 4. To increase the share prices and thus the credibility and goodwill of the company and its capability to raise further finance. Such return is prerequisite to keep the companys operations moving straightforwardly and efficiently thus allowing the above design to be accomplished. A financial manager and determination makers must present investment policies which will be concerned with how efficiently the companys funds are invested because it is from such investment that the company will survive. The investments are important because They influence companys size, Influence growth Influence companys risks In addition, to this investment decision making process which is also known as capital budgeting, involves the decision to invest the companys current funds in viable ventures whose returns will be realised for long term periods in future. Capital budgeting as financial planning is characterized by the following a. Decisions of this nature are long term i.e. extending beyond one year in which case they are also expected to generate returns of long term in nature. b. Investment is usually heavy (heavy capital injection) and as such has to be properly planned. c. These decisions are irreversible and any mistake may cause the company heavy dismissales. Importance of Investment Decisions 1) Such decisions are importance because they will influence the companys size (fixed assets, sales, and retained earnings). 2) They increase the value of the companys shares and thus its credibility. 3) The fact that they are irreversible means that they have to be made carefully to avoid any mistake which can deuce-ace to the failure of such investment. 4) Due to heavy capital outlay, more attention is required to avoid loss of huge sums of money which in the extreme ma y lead to the closure of such a company. However, these decisions are influenced by I. Political factors Under conditions of political uncertainty, such decisions cannot be made as it will implicate an element of risk of failure of such investment. Thus political certainty has to be analyzed in the first place such decisions are made, such factors must be taken into account such that the company forecasts the inflows and outflows at bottom given. Limitations such as the

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