The document discusses capital budgeting decisions, which refers to a firm's investment of current funds into long-term assets that are expected to generate benefits over several years. It covers various types of capital budgeting decisions like expansion, acquisition, modernization, and replacement projects. The capital budgeting process involves identifying investment opportunities, screening alternatives, analyzing feasible options, evaluating alternatives, and implementing and controlling approved projects. Various discounted and non-discounted cash flow criteria are used to evaluate projects and make the optimal investment choice.

1. By: VIKRAM.G.B
Lecturer, P.G Dept. of Commerce
Vivekananda Degree College, B’lore-55

2.  The Investment Decisions are generally known
as Capital Budgeting Decisions or Capital
Expenditure Decisions.
 It can be defined as the firm’s decision to invest
its current funds most efficiently in the long-
term assets in application of an expected flow
of benefits over a series of years.

3.  Expansion, acquisition, modernization and
replacement of long-term assets.
 Sale of a division or business.
 Change in the methods of sales distribution.
 Change in the methods of advertising
campaign.
 Change in the methods of Research and
development program.

4.  The exchange of current funds for future
benefits.
 The funds are invested in long-term assets.
 The future benefits will occur to the firm over a
series of years.

5.  1st Classification
 Expansion of existing business.
 Expansion of new business.
 Replacement and modernization.
 2nd Classification
 Mutually exclusive investments.
 Independent investments.
 Contingent investments.

6. Search for Investment Opportunities.
Screening the Alternatives.
Analysis of Feasible Alternatives.
Evaluation of Alternatives.
Authorization.
Implementation & Control.

7.  Estimation of cash flows.
 Estimation of the required rate of return.
 Application of a decision rule for making the
choice.
 Considering all cash flows to determine true
profitability.
 Separating good projects from bad projects.
 Ranking projects based on their true profitability.
 Recognizing Cash flows on several basis.
 Choosing among mutual exclusive projects which
maximizes S.H wealth.

8.  Non-discounted Cash Flow Criteria:
 Payback Period (PBP).
 Discounted Payback period (DPBP).
 Accounting Rate of Return (ARR).
 Discounted Cash Flows Criteria:
 Net present value (NPV).
 Internal Rate of Return (IRR).
 Profitability Index (PI).