finance concept in capital budgeting decision

May 28th, 2015
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Abilene Christian University
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Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender.In the Indian securities markets, the term bond is used for debt instruments issued by the central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector

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Fundamentals of Finance Handout no. 1 Students, please note Sections 1 & 2 have been provided as a part of material for Induction program Section 3 Application of Finance Concepts to BusinessRevenue receipt/expenditure and Capital receipt/expenditureRevenue receipt is defined as an inflow, which is recurring like sales revenue, dividend income etc. It is also referred to as revenue income. Revenue expenditure is also recurring and hence all the operating expenditure is revenue expenditure. Revenue receipt and revenue expenditure decide the profit for the year, whereas, capital receipt is outside the purview of the profit and loss account. Then, what is a capital receipt?Any inflow of a capital nature, like increase in capital of the owners, fresh loans taken from outside etc. is a capital receipt. The sources for capital receipts are as under:Share capital Term loanDebenturesFixed deposits for more than 12 monthsUnsecured loans from relatives, friends and promoters etc.What is capital expenditure?Purchase of any fixed assetRepayment of any earlier capital receipt like term loan, debenture etc.While operating expenditure can be met from operating income, capital expenditure can be met only out of capital receipts and not out of revenue income. In this connection, it should be noted that profit and depreciation are taken as capital receipt even though profit arises out of the excess of revenue income over revenu

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