1. what are some of the practical problems of capital budgeting in
Capital budgeting is the process of evaluating an organization’s potential investments to determine which ones will bring in the highest return. This can be a difficult process for large corporations due to several practical problems.
First, there are risks associated with capital budgeting decisions that cannot always be measured accurately. Companies must assess the risk of their investments and decide how much risk they are willing to take on in order to maximize returns. Second, it can be difficult for companies to accurately predict future cash flows from their proposed investment projects as market conditions and customer preferences often change unpredictably over time. Third, large corporations may have limited access to capital due to poor credit ratings or lack of liquidity, making it difficult for them to fund long-term investments without accumulating more debt or issuing new equity shares.
Finally, another challenge of capital budgeting in large corporations is the tendency for management teams and board members to favor short-term gains over long-term returns when they make decisions regarding financing options and business strategies. As a result, investing in potentially lucrative but high-risk ventures may not be seen as an attractive option compared with other more conservative investments that offer more immediate returns.