“A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give reasons for your answer?

Capital budgeting decision means the firm's decision to invest its available funds in long term assets in most efficient and effective manner so as to earn benefits for a series of years.

The capital budgeting decisions include the decisions like -

● Expansion

● Acquisition

● Modernization

● Replacement

● New product development

● Obligatory and welfare investment

The features of capital budgeting decisions are that

● They have long term consequences

● They involve substantial outlays

● They are difficult or expensive to reverse

The capital budgeting decisions are very crucial because they affect the earning capacity of the firm for long run as well as it involves huge amount of investment, which is almost irreversible.

So the capital budgeting decision should be taken with utmost care as it can change the fortune of a business either positive or negative that means it may increase the profitability or decrease the profitability and attract financial burden