Describe in brief the greatest difficulties faced in capital budgeting in the real world

Describe in brief the greatest difficulties faced in capital budgeting in the real world.

ANSWER
Difficulties faced in capital budgeting
– Uncertainty of variables e.g annual cash flows, discounting rates, changes in technology, inflation rate, changes in tax rates etc.
– Lack of adequate capital to undertake all viable profits (capital rationing)
– Lack of adequate information on the available investment opportunities e.g in case of mutually exclusive profits NPV and IRR will have conflict in banking of profits under some circumstances.
– Identification of all the quantifiable and non quantifiable costs and benefits association with a project.