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Describe in brief the greatest difficulties faced in capital budgeting in the real world.

Answers

Difficulties faced in capital budgeting

- Uncertainty of variables e.g annual cash flows, discounting rates, changes in
technology, inflation rate, changes in tax rates etc.

- Lack of adequate capital to undertake all viable profits (capital rationing)

- Lack of adequate information on the available investment opportunities e.g in
case of mutually exclusive profits NPV and IRR will have conflict in banking of
profits under some circumstances.

- Identification of all the quantifiable and non quantifiable costs and benefits
association with a project.

marto answered the question on February 8, 2019 at 05:02

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