ECON 2560 Chapter Notes - Chapter 10: Capital Budgeting, Cash Flow, Organize
30 Jul 2013
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Promising investment opportunities have to be identified and they have to fit in with the firm"s strategic goals. To evaluate opportunities properly, financial managers need unbiased cash flow forecasts that haven"t been skewed to. Large firms especially need to have set systems to facilitate effective communication across the organization. Generally, once a year head office will ask each division/plant to provide a list of investments they"d like to make. Budget is then reviewed and pruned by senior management. Once budget has been approved, it generally remains the basis for planning over the next year. Senior management"s concern is to see that the capital budget matches the firm"s strategic plans. Annual budget is important b/c it allows everyone to exchange ideas before attitudes have hardened and person commitments have been made. At a later stage will need to make a detailed proposal describing details of project.
