Joanne fletcher is angry with baxter long. He is behind schedule developing supporting material for tomorrows capital budgeting committee meeting. When she approached him about his apparent lackadaisical attitude in general and his tardiness in particular, he responded, "I don't see why we do this stuff in the first place. Its all a bunch of estimates. Who knows what future cash flows will really be? I don't. I've been doing this job for five years and no one has ever checked to see if I even came close at these guesses. I've been waiting for marketing to provide the estimated cash inflows on the projects being considered tomorrow. But, if you want my report now, ill have it in a couple hours. I can make up the marketing data as well as they can."


Does Baxter Long have a point? Is there something wrong with the company's capital budgeting system? Write a response explaining how to improve the investment evaluation system.

Capital budgeting is very important. How will you be able to pay your bills when they become due or be able to take advantage of special purchase opportunities if you do not have enough cash on hand. You have to know how much cash is expected to be received each month and how much cash is going to be paid, so you will know if you have enough cash to make payments or when you will have to borrow money, or when you will be able to upgrade equipment, purchase new equipment, or for renovations etc... Without a budgeting system you have no way of knowing how much cash will come in or how much you have to pay out.