Typical Capital Budgeting Decisions:

Learning Objectives:

1. What type of business decisions require capital budgeting analysis?

What types of business decisions require capital budgeting analysis? Business decisions that require capital budgeting analysis are decisions that involve in outlay now in order to obtain some return in the future.

This return may be in the form of increased revenue or reduced costs. Typical capital budgeting decisions include:

1. Cost reduction decisions. Should new equipment be purchased to reduce costs?
    

2. Expansion decisions. Should a new plan, warehouse, or other facility be acquired to increase capacity and sales?
    

3. Equipment selection decision. Which of several available machines should be the most cost effective to purchase?
    

4. Lease or buy decisions. Should new equipment be leased or purchased?
    

5. Equipment replacement decisions. Should old equipment be replaced now or later?

 

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