Why Capital budgeting decisions are more important?.

3 years ago

Financial Management

The long term Investment decision is called capital budgeting. It is more important due to the following reasons-

Long term growth and affects : As capital budgeting decisions involve investment in long term fixed assets, it affects the long term
Large amount of funds involved : As huge amount of fund is blocked for a long period, the decision should be taken rationally.
Risk involved : As such a decision affects the returns of the firm as a whole, it involves more
Irreversible decisions : These long term decisions taken once cannot be reversed back, without incurring heavy losses. It will lead to waste of fund, if

Thus capital budgeting decisions should be taken after careful study and deep analysis.

0

Sanisha Maharjan

Sanisha Maharjan

Jan 16, 2022

More related questions

1. Walk us through an investment declaration that you will show to your senior management.

2. If there is an increase in accounts receivable what will happen to the cash flow?

3. Why would you need to calculate depreciation?

4. Can you tell us how assets and liabilities affect a company’s cash flow?

5. What do you understand by financial benchmarking?

6. Mention the differences between NPV and IRR if you think there are any.

7. Mention any financial reporting software you have used before.

8. Explain the syntax of 2 lookup functions.

9. How can negative working capital help a business?

10. What are data formats in Excel? Mention 3 common ones.

11. Why are dividends not a part of income statements?

12. What are the components of the DuPont model and how are they calculated?

13. Why is the asset turnover ratio calculated?

14. Give one reason why you should analyse long-term liability.

15. Should you increase the consumer base by 1% or price by 1%?

16. What are the advantages of raising debt over equity?

17. What are the types of financial analysis? Explain at least three.

18. What is EBITDA? What is left out of it?

19. What is important to consider when deciding on capital investment?

20. When do you capitalize rather than expense a purchase?

21. What is variance analysis?

22. Which programs do you use to prepare illustrated technical graphs, charts, or spreadsheets?

23. What will you use to gauge the company’s liquidity – cash flow or income?

24. Which tools do you use for advanced financial modeling?

25. As a financial analyst which factors do you constantly analyze?

26. How is Cash Flow different from Free Cash Flow (FCF)?

27. What do you think are the common elements of financial analysis?

28. What do you mean by ratio analysis?

29. What do you know about valuation techniques?

30. What is ‘goodwill’?

31. What is ‘capital structure’?

32. What is a ‘composite cost of capital’?

33. Define average rate of return.

34. What are the demerits of the payback period?

35. What are the merits of payback period method? Payback method has the following merits:

36. What is the relation between the pay back period and the quality of project?

37. Write the formula for determining payback period of a cash flow project.

38. Define terminal cash flows.

39. What do you understand by operational cash flows?

40. What are initial cash flows?

41. Describe net capital investment as a component of investment analysis

42. What is the significance of investment analysis in the capital budgeting process?

43. What is post completion audit in the process of capital budgeting?

44. Describe some measures which are relevant for the successful implementation of a project in the process of capital budgeting.

45. Why are the capital investments important? Capital investments are important for three reasons:

46. What is capital budgeting? What steps are involved in the process of capital budgeting?

47. What points should be taken into consideration in order to calculate the cost of capital?

48. Describe the correct capital structure of a firm for obtaining the weights to work out the weighted average.

49. How many approaches are there for estimating cost of equity? There are four different approaches for estimating cost of equity:

50. What does the cost of equity capital indicate?

51. What is the importance of cost of equity capital?

52. Illustrate the method of computing cost of preference shares with the help of an example.

53. Write an important condition for the adjustment of the cost of debt.

54. What is cost of debt capital?

55. Illustrate the concept of average cost of capital with the help of an example?

56. Describe some aspects of cost of capital. A few aspects of cost of capital have been mentioned below:

57. Why is the cost of capital important?

58. What do you understand by the cost of capital?

59. A company had the following balance

60. Prepare Cash flow Statement from the following information of LOYD PVT. LTD. For the year ended March 31,2004. BALANCE SHEETS OF LOYD PVT. LTD.

61. From the following profit or loss account find out the flow of cash from operating activities of Mohan Ltd. Profit and Loss Account Dr. Cr.

62. Ms. Lakshmi Electrical Appliances furnish the following information -Calculate net cash flow from financing activities

63. What are the two methods which can be employed to calculate net cash flow from operating activities ?

64. Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing

65. Give one example each of an extra ordinary item under operating, investing and financing activity.

66. Give four example of movement between cash and cash equivalents.

67. Give examples of non cash transactions.

68. Where will you show purchase of furniture in cash flow statement ?

69. How will you classify deposits by customers in SBI while preparing cash flow statement.

70. How will you classify loans given by HDFC while preparing cash flow statement.

71. Why do we add back non cash items to net profit while calculating cash flow from operating activities.

72. Under which accounting standard , cash flow statement is prepared ?

73. Why is the cash flow statement not a suitable judge of profitability ?

74. A company receives a dividend of Rs. 5 Lakhs on its investment in other company’s share will it be Cash inflow from operating or investing activities in case of a. (i) Finance Company. (ii) Non-Finance Company.

75. Do you follow the stock market? Which stocks in particular?

76. What are ‘adjusting entries’?

77. How many financial statements are there? Name them

78. What is NPV? Where is it used?

79. What is ‘cost accountancy’?

80. Mention one difference between a P&L statement and a balance sheet?

81. What is the difference between a journal and a ledger?

82. Explain quarterly forecasting and expense models.

83. What is working capital, and which are the different types of working capital?

84. What do you think is the best evaluation metric for analyzing a company’s stock?

85. Is it possible for a company to have a positive cash flow but still be in serious financial trouble?

86. Walk me through a ‘cash flow statement.’

87. Explain ‘financial modelling’.

88. What is meant by ‘Financial management’ Explain its importance.

89. ‘Every Manager has to take three major decisions while performing the finance function’ briefly explain them.

90. What is meant by Working capital? How is it calculated? Explain the determinants of working capital requirements.

91. Explain briefly five factors determining the amount of fixed capital.

92. What are the determinant of capital structure of a company? OR ‘Determination of capital structure of a company is influenced by a number of factors’ explain six such factors.

93. What is Financial risk? How does it arise?

94. How does ‘Interest coverage ratio’ affects the capital structure.

95. Discuss how Working capital affects both the liquidity and profitability of a business.

96. Explain the role of ‘Operational efficiency’ in the determination of working capital requirement.

97. “To avoid the problem of shortage and surplus of funds, what is required in Financial management? Name the concept and explain four points of importance.

98. Define current assets and Give four examples.

99. Are the share holders of a company likely to gain with a debt component in the capital employed ? Explain with the help of an example?

100. Are the share holders of a company likely to gain with a debt component in the capital employed ? Explain with the help of an example?

101. What is capital structure of a company?

102. What do you mean by floatation cost?

103. How does production cycle effect working capital?

104. When is financial leverage considered favorable?

105. What is meant by capital budgeting decision?

106. State the difference between gross working capital and net working capital.

107. What is Working Capital ?

108. What are the objectives of financial planning?

109. What is meant by Financial Planning?

110. State the decisions involved in Financial management.

111. State the primary objective of Financial management.

112. Define Financial Management.

Questions Bank

View all Questions