Capital Budgeting



Capital Budgeting

Introduction

The capital budget is a list of projects valued presumed to be achievable for acquiring new assets, so the assessor must evaluate the advisability of investing in industrial and commercial buildings, transport equipment, machinery, equipment, furniture and bits etc. The problem of fixed capital investment is essentially the determination of whether profits provided for a proposed project, are attractive enough to warrant the investment of funds in that project. The investment is in a certain date, while profits are scattered in the long term future. To analyze the suitability of investments through the study of return on capital is models can be used as the IRR and NPV, which take into consideration the rate of market interest, allowing us to assess the opportunity costs of one or the other alternative (Cheng & Schulz, 2003).

Discussion Analysis

Functions of Capital Budget

The distribution function assumes the concentration of funds in the state through various channels of income and their use for public purposes and functions. This function is performed by the Treasury Department through their bodies. The control function is shown in carrying out control measures for the process of formation and use of funds in different structural levels of the economy. It is carried out tax inspections and tax police, the state Treasury, Central Bank and other bodies.

The essence of all economic categories, including budget, manifested in its functions. Since the budget is the most voluminous and basic financial category, he owned and all the basic functions of finance : redistribution of GDP , government regulation and economic stimulus, financial support for public sector and the implementation of social policy, financial control over the formation and use of centralized funds of funds. Adjusting, thus, economic relations, the state is able to specifically enhance or inhibit the rate of production, accelerate or reduce the growth of capital and private saving , change the structure of demand and consumption.

Information function. Budget - an indicator of the current state of the economy, social and political situation. structure of its revenue and expenditure gives an indication of the priorities of state policy, the extent of her influence by special interest groups. Moreover, since the law on the budget for next year is a planning document, it serves as a forecast of future economic situation. Its development is accompanied by a forward-looking calculations of the main indicators of the country, which focus not only government agencies but also private sector organizations , as well as ordinary citizens.

The institutionalization of social preferences. In democratic states, the adoption of the budget law is always preceded by its consideration in Parliament. At this stage in the Government bill adjustments are made based on the views of Deputies, representing the interests of their constituents. Thus, the structure of the budget reflects public preferences for government policies. Through the mechanisms of representative democracy, these preferences are translated into concrete figures of revenue and expense items. The budget is a tool for planning activities, or an action or set of ...