The following points indicate the importance of capital budgeting :
1) It highlights upon the possibilities of additions to production facilities to cover up the additional sales shown by the sales budget.
2) Adequate information about the various alternatives available to replace an obsolete asset or wasting asset.
3) It helps in the formulation of long-term policy about plans.
4) It is needed for cash forecasts and budget.
5) It also helps in following a sound policy with regard to depreciation and replacement of assets.
6) It renders help in considering the methods of profit-control and methods of cost reduction.
7) On the basis of this budget, it can be observed whether machines in place of men would be profitable or not.
8) An estimate about the cost of capital of improvements in working conditions and safety measures may be made with the help of this budget.
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