The process of capital marketing is highly rooted in the concept of the time value of money. Managers use the present value to evaluate an investment opportunity. Capital budgeting is a challenging task for the financial managers to decide on the amount of money to allocate for every investment to meet the market’s share price expectation for forward earning. Apart from the cost factor, managers have to consider the changing nature of the capital investment. Capital planning when selecting cloud system to use, speed and agility of decision-making, timing
Managers need to consider the changing nature of capital investments in the US. Current trends show that capital investment changes from new manufacturing plants, machinery, and other hard assets and focuses more on research and development, software, and staffing ( Banham, 2017) . Companies, especially the technology sector and their service providers, need to focus more on improving customer service and securing corporate networks before budgeting for updating old equipment. Another vital factor to consider is planning since it allows managers to select the most suitable cloud system to use. The cloud application selected helps managers decide whether the cloud application selected will help the company grow and invest in the right people for a better long term return investment. Through BlackLine leans toward metrics, managers select cloud applications like vendors' net promoter score (NPS), testimonials of customers, and the company's reputation for enhancing the brand, marketing, and data security ( Banham, 2017) . The metric ensures faster investment decision making like the system to buy and house to house company's data.
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Timing is another important factor for managers to consider when developing capital budgets. Time frame is essential for determining the anticipated investment return from various investments ( Baker et al., 2010) . The manager has to consider various problems at hand and the variability available to solve the issues. Another example is when a manager gives an ERP system that will bring upfront capital investment in 10 years instead of new market automation. There is uncertainty of the market for the next ten years’ time. Lastly, the manager needs to weigh the short term and long term hurdle rates of potential takeovers. The short-term hurdle rate is expected to be equal to or better than a share repurchase over a five-year.
References
Baker, H. K., Dutta, S., & Saadi, S. (2010). Management views on real options in capital budgeting. Journal of Applied Finance, Forthcoming .
Banham, R. (2017). How CFOs Make Capital Budgeting Decisions . CFO. Retrieved 15 February 2021, from https://www.cfo.com/budgeting/2017/10/best-path-forward/ .
