Techniques and approaches in capital budgeting
This paper will reveal an extensive understanding on methods, techniques and approaches in capital budgeting that is being adopted by private and public entrepreneurs. Way back in the communal primitive period, families go hunting expeditions as their basic food resource and live from place to place where food is available. This group of primitive families collectively gathers food and share among themselves. The increase of families has predominantly ruled the collective sharing which divided family groups.
The division of family groups has created a tribe and acquired territories for hunting. Subsequently dominance over territories for hunting has brought about tribal wars and individual acquisition of food sustenance. The transformation of societies has remarkably transpired economies. The way of life emerges in acquiring of resources. The requirements are basically for food, clothing and shelter. The acquisition evolves in a diverse labor and competitive economic resource.
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The Philippines, being a developing country in the South East Asia and member of the Association of South East Asian Nations (ASEAN) and the World Trade Organization (WTO), opens its economic doorways— from the back door to shape up its trade and commerce with the ASEAN allies and the main door for the American and European free trade—to gain a competitive edge in the global market. Since the Philippines’ economic orientation depends on export and import market, the 1992 adaptation of the East Asian Growth Areas (EAGA) have paved the way to creating more business opportunities for the Filipino entrepreneurs.
These entrepreneurs compose the Small-Medium Enterprises (SME’s) and several became large enterprises to full blown corporations for a span of almost two decades. The influx of domestic and foreign investments have seen more substantial in the form of capital financing in fixed assets, labor market, services, supply chain management, equipment that are composing the application of capital budgeting, as discussed in the framework of studies and theories of Theodore Chen (2006) and the perceptions of financial management by Ravi Jagannathan and Iwan Miler (2002).
On the other hand, the progressive growth of industries in the Philippines today is perceived as relentless yet insensible to adopt a more stable financial stance with seeming effect to corporate finance as the Organization for Economic Co-Operation and Development (OECD, 2003) studied on. Meanwhile, another perception on the role of corporate sector to nationalize the Philippines’ industries as responding to rural development was recognized by the Asian Development Bank (ADB).
Over the years, structuring the Philippines’ economy relies on the utilization of resources, distribution of wealth and labor compensation. Thus, the overall activity cycle of produce-reproduce depends on the consumption and efficiency of both labor and raw materials’ production. The Philippines’ economy, in the point of view of resources utilization to complement efficient production, shifts to a wide variety of entrepreneurship consisted of project financing, joint ventures, banking to name a few.
In which the framework of entrepreneurship is mainly on capital investments. Many forms of capital investments absorb direct costs of labor, supplies, foreign currency adjustments, utilities and so forth. The entrepreneur always holds the liability and vulnerability to risks before profit. The infusion of added capitalization to business, which is sometimes unavoidable, is one of the reasons behind inflexibility to ballooning overhead.
The component of undertaking the unforeseen risk in managing investments has somehow enhanced with extensive studies on capital budgeting that defines the procedures, processes and upbringing to determine the viability and feasibility of a business venture. Therefore, one of the critical factors that indulge into the presumptive success of entrepreneurship is the capability to appraise. The entrepreneur could be a visionary to prediction and change. Moreover, the entrepreneur must be adaptable to the societal transitions, shifts and trends of both production and market.