St’mary university business faculty department of accounting

iv. Implementation and Monitor

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ALEMTSEHAY BEYENE
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iv.
Implementation and Monitor One a proposal has been approved and funding has been made available, the implementation phase begins. Capital investment are monitored during the actual period of acquisition or construction because deviations, whether good or bad should be recognized take into consideration and dealt with (Seitz, 1990).
V. Followup
During the projects progress it will be necessary to ensure that capital spending does not exceed the amount authorized, that the implementation of the project is not delayed and that the anticipated benefits are eventually obtained. This procedure analyzes alternatives that have been adopted in order to determine if they should be continued, modified or terminated. An investment is terminated when corporate managers decide that is no longer contributes to shareholder wealth, irrespective of the original figures that made the investment desirable. Reviewing past decisions should also improve management’s ability to evaluate subsequent investment alternatives (Neveu, 1985).
2.3.2 Data requirement in capital budgeting
To make capital budgeting decision in light at its goal, a firm should perform the following three tasks in evaluating project. i. Estimate cash flows ii. Estimate a required rate of return iii. Apply decision rule to determine whether the projects is worthy or not
(Yaregal, 2007).

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2.3.3 Guidelines for capital budgeting
i. Use cash flows rather than accounting profit
 The cash flows that directly affect the firm’s ability to pay bills and purchase assets. If a company cannot generate cash flow from its projects, sooner or later, it will be insolvent Cash flow is theoretically better measures or the net economic benefits or costs associated with a prospective project.
 Use of cash flows minimized accounting ambiguities that are prevalent in determining earnings. Where different earnings number could be developed for the same project depending on the accounting procedures followed, there is only one set of cash flow stream associated with a project.

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