Q5 Explain the capital Budgeting process and its appraisals
Solve the below given problem:
Given below are the details on the cash flows of two projects A and B. Compute payback period for A and B.
Cash flows of A and B
Year Project A cash flows (Rs.) Project B cash flows (Rs.)
0 (4,00,000) (5,00,000)
1 2,00,000 1,00,000
2 1,75,000 2,00,000
3 25,000 3,00,000
4 2,00,000 4,00,000
5 1,50,000 2,00,000
Explanation of capital budgeting process and its appraisals.
Answer: Capital budgeting process
After the screening of proposals for potential involvement is over, the company should take up the following aspects of capital budgeting process:
A proposal should be commercially viable. The following aspects are examined to ascertain the commercial viability of any investment proposal:
Market for the product
Availability of raw materials
Sources of raw materials
Q6 Explain the concepts of working capital. Explain the determinants of working capital.
Explanation of concepts of working capital
Explanation of determinants of working capital
Answer: Concepts of Working Capital
Gross working capital: Gross working capital refers to the amounts invested in various components of current assets. It basically refers to the current assets. This concept has the following practical relevance:
Management of current assets is the crucial aspect of working capital management
Gross working capital helps in the fixation of various areas of financial responsibility
Gross working capital is an important component of operating capital.