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406 Corporate Finance BRILLIANT’S

adoption of an investment increases average BÝdoñQ>_|Q> go gm_mÝ` bm^ hmoVm h¡ {H$ÝVw bm^ àm{ßV _|
gain, but causes frequent fluctuations in its ~ma-~ma CVma-M‹T>md hmoVo ahVo h¢ Vmo `h [añH ^am hmo
earnings, the firm will become more risky.
gH$Vm h¡Ÿ& Bg àH$ma, BÝdoñQ>_|Q> g§~§Yr {ZU©` \$_© H$s
Thus, investment decisions shape the basic
character of a firm. _yc {deofVmE§ Xem©Vm h¡Ÿ&
6. Long-term implications: Capital bud- 6. XrK©H$mbrZ à^md… H¡${nQ>b ~OqQ>J g§~§Yr {ZU©`
geting decisions have a long term implications {H$gr {~OZog Ho$ g§MmbZ na XrK©H$mbrZ à^md S>mbVo h¢Ÿ&
on the operations of the business. A wrong EH$ JbV {ZU©` bå~o g_` VH$ Ho$ {b`o {~OZog Ho$
decision may affect the long term survival of ApñVËd Ho$ {b`o IVam ~Z gH$Vm h¡Ÿ& `{X gån{Îm`m| _|
the firm. The excess investment in fixed assets
may increase the operating costs while inad- Amdí`H$Vm go A{YH$ BÝdoñQ> H$a {X`m OmE Vmo {~OZog
equate investment may reduce the ability to H$s Am°naoqQ>J H$m°ñQ> ~‹T> OmVr h¢ Am¡a `{X An`m©ßV BÝdoñQ>
compete and to survive. Therefore, investment {H$`m OmE Vmo \$_© Ho$ {b`o gdm©Bd H$aZm ^r _wpíH$b hmo
decisions must be balanced. OmEJmŸ& AV… BÝdoñQ>_|Q> g§~§Yr {ZU©` g§Vw{bV hmoZm Mm{hEŸ&
Thus, capital budgeting decisions are of H¡${nQ>b ~OqQ>J g§~§Yr {ZU©` \$m`Z|{e`c {S>{gOZ
great importance in financial decision making. _oqH$J _| _hËdnyU© ^y{_H$m {Z^mVo h¢Ÿ& `o {ZU©` {H$gr \$_©
They determine the future of the organization. Ho$ ^{dî` H$m {ZYm©aU H$aVo h¢Ÿ& BÝdoñQ>_|Q> g§~§Yr EH$
A correct investment decision can yield spec- AÀN>m {ZU©` Ohm± AË`ÝV bm^Xm`H$ hmo gH$Vm h¡ dht
tacular returns. On the other hand, an incor-
EH$ JbV {ZU©` \$_© Ho$ {b`o Omo{I_ ~Z gH$Vm h¡Ÿ& Wmo‹S>o
rect decision can endanger even the survival of
the firm. A few wrong financial decision can go JbV \$m`ZopÝe`c {S>{gOZ go \$_© {Xdm{b`m VH$ hmo
lead the firm to bankruptcy. gH$Vr h¡Ÿ&

Types of Capital Investment Decisions H¡${nQ>b BÝdoñQ>_|Q {S>{gOZ Ho$ àH$ma
Capital investment decisions are associ- H¡${nQ>b BÝdoñQ>_|Q> {S>{gOZ bm±J-Q>_© [agmog}g Ho$
ated with application of long-term resources. Cn`moJ go g§~§{YV hmoVo h¢Ÿ& BZ {S>{gOÝg H$mo AbJ-
There are many ways to classify the capital AbJ àH$mam| _| dJuH¥$V {H$`m Om gH$Vm h¡Ÿ& gm_mÝ`V…
budgeting decision. Generally, capital invest- H¡${nQ>b BÝdoñQ>_|Q> {S>{gOZ H$mo Xmo ^mJm| _| dJuH¥$V {H$`m
ment decisions are classified in two ways: Om gH$Vm h¡:
A. On the basis of firm’s existence. A. \$_© Ho$ ApñVËd Ho$ AmYma na &
B. On the basis of decision situation. B. {S>{gOZ g§~§Yr n[apñW{V`m| Ho$ AmYma na &
A. On the basis of Firm’s Existence A. \$_© Ho$ ApñVËd Ho$ AmYma na

The capital budgeting decisions are taken H¡${nQ>b ~OqQ>J {S>{gOZ VWm nhbo go ñWm{nV
by both newly incorporated firms as well as XmoZm| \$_© Ûmam {bE OmVo h¢Ÿ& ZB© \$_© H$moB© Z`m ßbm§Q> bJmZo
by existing firms. The new firms may be
required to take decisions in respect of selection H$m {ZU©` bo gH$Vr h¡Ÿ& nhbo go ñWm{nV \$_© ZB©
of plant to be installed. The existing firm may Amdí`H$VmAm| H$mo Ü`mZ _| aIVo hþE H$moB© {ZU©` bo gH$Vr
be required to take decisions to meet the
requirement of new environment or to face the h¡ Vm{H$ M¡b|Oog H$m gm_Zm {H$`m Om gHo$Ÿ& BZ {ZU©`m| H$mo
challenges of competition. These decisions may {ZåZ{b{IV àH$mam| _| {d^m{OV {H$`m Om gH$Vm h¡…
be classified into: