4 Important Kinds of Capital expenditure proposals

Kinds of Capital Expenditure Proposals

The following.are the kinds of capital expenditure proposals.

1. Independent Proposal: Independent proposal means that there is no alternative proposal to choose the best one. In other words, there is only one project. In this context, the company has the option of selecting the project or rejecting the project. There is only one criteria followed for selection. If the revenue is more than the cost, the concerned project will be selected and vice versa.

2. Dependent Proposals or Contingent Proposals: When a proposal depends on the acceptance of some other proposal, it is called a dependent proposal. For example, the buying of DVD player leads to the buying of TV. Likewise, the buying of mobile handset leads to the buying of mobile charger. In this case, both the proposals should be selected simultaneously.

3. Mutually Exclusive Proposals: Some proposals are competing with each other in all aspects. All are getting equal rents also. In this case, the company is going to select one proposal, if so, others are automatically rejected. For example, Purchase of Laptop. Many brands are available in the market. If the company selects anyone brand, automatically other brands are rejected.

4. Capital Rationing: The company has huge amount in hand. At the same time, the same company has two or more profitable projects in hand. But, the amount is not sufficient for investing in all the proposals. Hence, the company is going to apportioned the available funds in various proposals. This is called capital rationing. The company can screen all the proposals with relative merits of each proposal separately. The ranks are also given by the company. The profitable projects are selected in order of ranks upto the stage of availability of funds.