What is the 2nd step of capital budgeting?
Identifying the potential projects
The second step of capital budgeting is to generate project proposals. In this step, the company evaluates and identifies potential investment opportunities that are consistent with its strategic objectives and financial performance goals. The project proposals may come from internal sources, such as the marketing, sales or R&D departments or from external sources such as vendors, consultants or other companies in the industry. Each project proposal should include a detailed description of the project, the estimated costs and benefits, the expected timeline, and the risks involved. The project proposals are then evaluated based on various criteria, such as their potential profitability, their alignment with the company’s goals and objectives, their risk profile, and their impact on the company’s cash flow and financial performance. The most promising projects are prioritized and move to the next stage of the capital budgeting process.
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