ABC, Ltd. is considering the purchase of a new factory that will increase their capacity.  They plan to pay for the investment with an amortized bank loan.  The annual payments on the loan will be $963,000 per year, of which $363,000 of the first-year payment will be interest.  How will the payment and interest be treated in the cash flows for capital budgeting?

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Q: Vijay

A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.