Capital budgeting is not an exact science. If it were, companies would never make bad decisions about expansions, product development, equipment upgrades and other capital projects. The unfinished highway in the middle of Cape town bears testimony to a possible capital budgeting process gone wrong. The fact that companies make these kind of mistakes points to the limitations of capital budgeting.

Discuss the limitations of capital budgeting by specifically indicating what makes the process difficult.

Having an understanding of time value of money for a single amount andfor an annuityWhile preparing the answer for the question above, reflect on the following questions:

1)Which specific factors make capital budgeting process difficult?

2)How do these factors make capital budgeting process difficult?