The Capital Budgeting Process
This question takes a step back from the quantitative analysis and makes you think about how you would manage a capital budgeting project in a
firm. You have just graduated from university and have taken up your first job in a local distribution firm. The firm stores alcoholic beverages
for breweries and distributes these to pubs and restaurants depending on the specific orders placed with your customers. Your firm does not own
any stock: it just holds it for others and distributes it when needed. The directors are considering expanding their business by building two new
warehouses to increase capacity and hopefully revenues. As a corporate finance expert you have been tasked with the job of managing the capital
budgeting analysis from the initial idea to the start of operations.
Prepare a flow chart or mind map for presentation to the directors that will deal with the following issues:
a. Who will prepare the initial proposal?
b. What information will the proposal contain?
c. How will you evaluate it?
d. What approvals will be needed and who will give them?
e. What happens if the expenditure is 25 per cent more than the original forecast?
f. What will happen when the warehouses have been built?