Capital Budgeting Techniques

Capital Budgeting Techniques
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Table of Contents TOC \o "1-3" \h \z \u 1.0 Introduction PAGEREF _Toc38602614 \h 22.0 Common Capital Budgeting Techniques PAGEREF _Toc38602615 \h 22.1 Traditional Budgeting PAGEREF _Toc38602616 \h 22.2 Alternative Budgeting Methods PAGEREF _Toc38602617 \h 32.3 Zero-Based Budgeting (ZBB) PAGEREF _Toc38602618 \h 32.4 Activity-Based Budgeting (ABB) PAGEREF _Toc38602619 \h 33.0 Conclusion PAGEREF _Toc38602620 \h 4References PAGEREF _Toc38602621 \h 5
Capital Budgeting Techniques
1.0 Introduction
Capital budgeting provides a business with long term success in the selected market segment. The capital budgeting approaches help in analyzing the cost and return of different investments. Annual planning is crucial in maximizing the performance of the company in a specific industry. According to Malenko (2019) tradition and alternative budgeting techniques should be applied by a firm in maximizing profits in the target market. The budgeting technique applied by a business ought to assist in monitoring and controlling production processes.
2.0 Common Capital Budgeting Techniques
2.1 Traditional Budgeting
The traditional budgeting is crucial in the performance evaluation of the company. The evaluation of expenses and returns in the company help in identifying the right approach to maximize income (Malenko 2019). A company should focus on reducing costs and increasing revenue from different investments. The traditional budgetary system provides the financial position of a company by evaluating the costs incurred and return from the venture. Traditional budgeting requires a business to focus on using an investment plan that maximizes revenue. The long-range planning using the traditional budgetary system is possible by evaluating the possible future growth of the company following the decision.
2.2 Alternative Budgeting Methods
The alternative budgetary system considers the changes in the business environment and the risk of investment. The traditional budgetary system considers expenses and returns without evaluating the possible risks of the venture. Traditional budgeting does not evaluate the success factors of the business and the reasons for the change in annual company expenses. A business should apply alternative budgeting methods to maximize return and future growth (Sageder & Feldbauer-Durstmuller 2018). The common alternative budgetary systems are zero-based budget...