Question

Your task is to find a newspaper article about a corporation undertaking or considering a capital budgeting project. Include a brief summary of what you read, a discussion of why you chose this example, and an analysis of whether you think the company is making the right decision. In addition, please attach or provide a link to the article you have chosen. minimum 400 words

Answer 1

Capital Budgeting (Long term capital expenditure) is a process where a company decides whether the existing long term assets or investments (plants, machineries, land)  require further funding of cash by the means of capital restructure.

It is one of the most important tool for strengthening financial position of the company and add value to the liquidity and productivity.

Article link- https://mybs.in/2YKtXRE

Title of article-

Tata Steel expecting capital expenditure to touch Rs 9000 cr in FY 20.

Source - Business Standard, Date - 16th Feb 2020.

Company’s decision-

Company is planning to induce more capital in its Operations which has given rise to its capital expenditure to Rs.9000cr. Main purpose of the company is to start new plant in Orrissa at Kalinganagar district to expand its functional unit in India and to meet consumption demand by almost 5000 million tones.

Positive Aspects of decision of inducing/increasing capital expenditure-

1) By giving priority to pallet plants, cost minimization will take place.

2) With increase to production of steel, more demand of consumption of consumer can be satisfied.

3) While framing current decision, company has focused on the long term planning. They have viewed the horizon of four years and have taken financial obligation in accordance to the returns.

4) To simplify the corporate finance structure, parent company will reduce its subsidaries by 100-200 as they have majority subsidaries in Europe. So control would be easy.

Negative Aspects/ Few major concerns -

1) Liquidity issue.

2) New Govt policies or legal formalities which would affect the industry. (Political risk)

3) Risk of decrease in consumer consumption due to increase in inflation and price high.

4) competitive market