As we all kow that planning, budgeting and forecasting processes are already considered as some of the most neglected and underserved management proceduresand when it comes to suitable systems support. So it should come as no surprise that the planning and approval of Capital Expenditure (CAPEX), a more specialised aspect of budgeting generally receives even less attention.
With many corporate balance sheets flush with cash,choosing which investments to make is obviously a critical task for CFOs. And amid continued economic uncertainty, many wonder what will make the difference between capital expenditure (capex) programs that deliver value and competitive advantage, and those that don’t.
Universally acknowledged by management of all levels as a problem area, it is dogged by lengthy timescales, cumbersome approval procedures and inaccurate data, causing many to question the value of a process which absorbs so much management time.
As we all know that there are basic three stages within Capital Budgeting :
(1) Decision Analysis for Knowledge Building
(2) Option Pricing to Establish Position
(3) Discounted Cash Flow (DCF) for making the Investment Decision
In my openion I considered as following aspect of capital expenditure process consider the most challenging or difficult aspect
! Option Pricing to Establish Position that is second step of Capital budet analysis
it includes the following
1. Payback period.
Many time it become difficult to decide that for how many years the project is generating income and for how much time it is going to benificial to us.Because the situation will be very according to the change in the economy enviornment
2. Timing Options:
some time it become most defficult to decide wether to delay our investment in the project.
3. Abandonment Options:
The ability to abandon or get out of a project that has gone bad.
4. Growth Options:
The ability of a project to provide long-term growth despite negative values. For example, a new research program may appear negative, but it might lead to new product innovations and market growth. We need to consider the growth options of project
