Significance of capital budgeting The key function of the financial management is the selection of the most profitable assortment

of capital investment and it is the most important area of decision-making of the financial manger because any action taken by the manger in this area affects the working and the profitability of the firm for many years to come. The need of capital budgeting can be emphasised taking into consideration the very nature of the capital expenditure such as heavy investment in capital projects, long-term implications for the firm, irreversible decisions and complicates of the decision making. Its importance can be illustrated well on the following other grounds:(1) Indirect Forecast of Sales. The investment in fixed assets is related to future sales of the firm during the life time of the assets purchased. It shows the possibility of expanding the production facilities to cover additional sales shown in the sales budget. Any failure to make the sales forecast accurately would result in over investment or under investment in fixed assets and any erroneous forecast of asset needs may lead the firm to serious economic results. (2) Comparative Study of Alternative Projects Capital budgeting makes a comparative study of the alternative projects for the replacement of assets which are wearing out or are in danger of becoming obsolete so as to make the best possible investment in the replacement of assets. For this purpose, the profitability of each projects is estimated. (3) Timing of Assets-Acquisition. Proper capital budgeting leads to proper timing of assetsacquisition and improvement in quality of assets purchased. It is due to ht nature of demand and supply of capital goods. The demand of capital goods does not arise until sales impinge on productive capacity and such situation occur only intermittently. On the other hand, supply of capital goods with their availability is one of the functions of capital budgeting. (4) Cash Forecast. Capital investment requires substantial funds which can only be arranged by making determined efforts to ensure their availability at the right time. Thus it facilitates cash forecast. (5) Worth-Maximization of Shareholders. The impact of long-term capital investment decisions is far reaching. It protects the interests of the shareholders and of the enterprise because it avoids over-investment and under-investment in fixed assets. By selecting the most profitable projects, the management facilitates the wealth maximization of equity shareholders. (6) Other Factors. The following other factors can also be considered for its significance:It assist in formulating a sound depreciation and assets replacement policy. It may be useful n considering methods of coast reduction. A reduction campaign may necessitate the consideration of purchasing most up-todate and modern equipment. The feasibility of replacing manual work by machinery may be seen from the capital forecast be comparing the manual cost an the capital cost. The capital cost of improving working conditions or safety can be obtained through capital expenditure forecasting.

It facilitates the management in making of the long-term plans an assists in the formulation of general policy. It studies the impact of capital investment on the revenue expenditure of the firm such as depreciation, insure and there fixed assets.

Meaning and definition of prospectus and the various contents of a prospectus. After the receipt of certificate of incorporation, if the promoters of a public limited company wishes to issue shares to the public, he will issue a document called prospectus. It is an invitation to the public to subscribe to the share capital of the company. The companies Act, 1956 defines prospectus as any document described or issued as a prospectus and include any notice, circular, advertisement or other documents inviting deposits from the public or inviting offer from the public for the subscription of shares. It is circulated among the public in printed pamphlets. It gives all necessary information about the company so that the prospective shareholders may fully understand the objectives and the plans of the company. Objectives: Prospectus is issued with the following broad objectives: It informs the company about the formation of a new company. It serves as a written evidence about the terms and conditions of issue of shares or debentures of a company. It induces the investors to invest in the shares and debentures of the company. It describes the nature, extent and future prospectus of the company. It maintains all authentic records on the issue and make the directors liable for the misstatement in the prospectus. Contents: The following important matter are included in the prospectus: The prospectus contains the main objectives of the company, the name and addresses of the signatories of the memorandum of association and the number of shares held by them. The name, addresses and occupation of directors and managing directors. The number and classes of shares and debentures issued. The qualification share of directors and the interest of directors for the promotion of company. The number, description and the document of shares or debentures which within the two preceding years have been agreed to be issed other than cash. The name and addresses of the vendors of any property acquired by the company and the amount paid or to be paid.

particulars about the directors, secretaries and the treasures and their remuneration. The amount for the minimum subscription. If the company carrying on business, the length of time of such businesses. The estimated amount of preliminary expenses. Name and address of the auditors, bankers and solicitors of the company. Time and place where copies of balance sheets, profits and loss account and the auditors report may be inspected. The auditor's report so submitted must deal with the profit and loss of the company for each year of five financial years immediately preceding the issue of prospectus. If any profit or reserve has been capitalized, the particulars of such capitalization will be stated in the prospectus. Companies Act 1956, defines a Prospectus as any document described or issued as prospectus and includes any notice, circular, advertisement inviting deposits from the public or inviting offers from the public for subscription or purchase of any shares in, or debentures of a body corporate. In simple words, it may be defined as an invitation to the public to subscribe to a companys shares or debentures. The following are the contents of Prospectus; 1. Name and Registered office of the company 2. The main objects of the company 3. Remuneration of the Directors 4. Names, addresses, descriptions and occupations of the Directors, Managing Directors, Secretaries, Treasurers and Managers 5. Particulars of the property of the company 6. Amount of preliminary expenses 7. Amount of expenses of the issue 8. Details of every contract with the company 9. Time and Place where contracts may be inspected 10. Name and address of the auditors and bankers of the company 11. Particulars of reserves and reserves capitalized 12. Time of opening and closing of subscription list A prospectus means any document describe or issue as a prospectus and includes any notice, circular, advertisement or other documents inviting deposits from the public or inviting offers from the public for the subscription or purchase of shares in or debentures of a day corporate. The main contents of a prospectus are: I. Main object of the company with the names, addresses, description and occupation of signatories to the memorandum and the number of shares subscribed for by them. II. Number and classes of shares and the nature and extent of the interest of holders thereof in the property and profits of the company.

III. The number of redeemable preference shares intended to be issued and the date of redemption or where no date is fixed; the period of notice required for redeeming the share s and proposed method of redemption. IV. The number of shares. if any, fixed by the Article as the qualification of a director and the remuneration of the directors for the service. V. The names, occupation and addresses of directors, managing director and manager together with any provision in the Articles or a contract regarding their appointment remuneration or compensation for loss of office. VI. The time of opening of the subscription list should be given in the prospectus. VII. The amount payable on application and allotment on each share should be stated. If any prospectus is issued within two years, the details of the shares subscribed for any allotted. VIII. The particular about any option or preferential right to be given to any person to subscribe for shares or debentures of the company. IX. The number of shares or debentures which within the two preceding year been issued for a considerations other than cash. X. Particulars about premium received on shares within two preceding years or to be received. XI. The amount or rate of underwriting commission. XII. Preliminary expenses. XIII. The names and addresses of auditors, if any, of the company. XIV. Where the shares are of more than one class, the rights of voting and rights as to capital and dividend attached to several classes of shares. XV. If nay reserve or profits of the company have been capitalized, particulars of capitalizations and particulars of the surplus arising from any revaluation of the assets of the company.

XVI. A reasonable time and place at which copies of all accounts on which the report of auditors is based may be inspected.