Decisions involving huge outlays of capital are almost always classic gut decisions

Yes, I agree with the fact that decisions involving heavy capital investments are indeed risky and make it hard for the management to decide its feasibility in the long term from an uncertain set of alternatives. It is true that such decisions are tough as they can bring large benefits in return or may also hurt the company. The management responsible for these decisions is faced with volatile situations. In addition to that there is also external pressure that may impact the decision made. For e.g. coking in a chemical company requires a large battery.  This is the most significant part of capital equipment in the coking plant. In 1975, the company had to make an important decision that involved $6 million regarding changing the battery as it was needed to be replaced. This was no doubt a gut decision. However, the CEO rather decided to invest in smaller amounts to make use of the same battery. Unfortunately, his decision ended up in collapse of the battery in 1979. This led the company into violations of the contract and other environmental and pollution regulations. They were entitled to more than $100 million lawsuits. They chose a short term solution for a long term gain for which they had to pay a heavy price. According to a manager of Weft Corporation, in the case of the chemical company, they failed to realize political decision when ignoring a major investment.

Therefore, the function of capital budgeting plays an important role for the corporate finance department. In capital budgeting best projects are selected into which firms resources are utilized based on risk and benefit analysis of the project. It is an important activity for financial managers as it revolves around large investments and because of competition in the economy. Examples of companies investing heavy capital investments include Intel, Shell, British Airways, Samsung and more.

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