Financial Management

3 Types or Kinds of Capital budgeting

Last time I have discussed the process of capital budgeting with its importance. Toady we will discuss the different types of capital budgeting: 

1.) Accept reject decisions: all the investment decisions which give more return than the cost of capital they are acceptable while the investment decisions which give less return than the cost of capital they are rejected. Thus firm will make investment only if the decision is acceptable.

2) Mutually exclusive decisions: these are the decisions which compete with each other which mean the acceptance of one automatically rejects the other decision. The firm has various alternatives; once one alternative is selected the other alternatives are automatically rejected.

3) Capital rationing or ranking decisions: in case the firm has various profitable investment proposals in that case the firm had only option to rank them as per their profitability and then accept them.

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