Capital Budgeting and Business Ethics Essay Example | Topics and Well Written Essays - 1250 words

Capital Budgeting and Business Ethics - Essay Example The above-detailed case is an illuminating example for this. The financial management was experiencing the difficulty of how to obey governments rule and follow business ethics whereas how to deal with the inventory in a way that is the best interest of the shareholders. Financial management is expected to evaluate a number of factors in making capital investment decisions. They need to estimate how much is the future cash flows of the firm and how it will change if it invests in a project, but more specifically, the management has to evaluate and foresee the uncertainty associated with these future cash flows (Peterson and Fabozzi, 2002, p. 4). In capital budgeting, the financial management is primarily responsible for searching for the best alternatives, just as with zero-based budgeting, so as to avoid any likely risks (Finkler and McHugh, 2008, p. 246). It is thus the fundamental responsibility of the financial managers in capital budgeting to study and assess whether there can be any legal, economic and financial troubles in carrying in the business in the future and to find best alternatives from many options it has. The financial management, especially in order to ensure that they could save the interests of the shareholders, must evaluate the projects even after it has started manufacturing or marketing of the particular products. In the case detailed above - fire-retardant pajamas- the financial management has to evaluate that this can be a risky project due to its contents that are carcinogens, and therefore over-production can result in greater risks. There must be a proper mechanism in the capital budgeting so that it can avoid complaints of individuals that things are not done the way they should be done.