Answer to Question #272647 in Management for Zeinab

Question

Capital budgeting is a method of estimating the financial viability of a capital investment over the life of the investment. A small company is considering whether to purchase a new delivery or to hire a delivery service.

Required:

1.                 Critically discuss the purpose of capital budgeting. (70 words)

Answer 1

Capital budgeting helps in selecting the most profitable investment, controlling capital costs and ensuring no investment opportunities are lost in the crux of budgeting, and will thus help the new company in the decision to either purchase a new delivery or hire a delivery service. Particularly, capital budgeting will help the small company evaluate both investment proposals, choose a profitable investment, identify the right source of funds, apportion resources effectively and review performance.