THEORETICAL FRAMEWORK
2.2.1 Capital Expenditure Varience
Capital expenditure varience involves capital budgeting where a business entity identifies which
proposed asset to purchase and which one to decline. This is done onn the basis of the fixed
assets quantitative view giving a rational decision making. Capital budgeting in a bank includes;
additional ATM machine purchase, additional desktopsv and other computer accessories,
issuing ang repaying of debts.
Capital expenditure budgeting involves several techniques which includes; determining the net
present value of the asset to buy, determining its payback period,its cashflow or its internal rate
of return. Capital budgeting has attracted many researchers during the past decates giving rise
to capital budgeting theories such as the Portfolio theory by Markowitz in 1952 which is
concerned with risk and return. He argues that budgeting shoulod be done with respect to the
assets expected return and risk with a general objective of maximizing the companys value. This
theory aims at answering the shortcomings of the classical economic approach of budgeting
which regards money as neutral and in our case, bu8dgeting is done in relation to an assets
returns.
The bank is concerned only with expected value of the asset aiming at maximizing the benefits
of investment considering its risks andv returns.Portfolio theopry differs with the concept of
capital budgeting in that, in the budgeting problem, the variable can only take the value of one
or zero; funds are invested in a particular project or they are not. The portfolio problem also
assumes that all investors are expected utility maximiers - who can get maximum satisfaction
from their economic decisions.
2.2.1 Capital Expenditure Varience
Capital expenditure varience involves capital budgeting where a business entity identifies which
proposed asset to purchase and which one to decline. This is done onn the basis of the fixed
assets quantitative view giving a rational decision making. Capital budgeting in a bank includes;
additional ATM machine purchase, additional desktopsv and other computer accessories,
issuing ang repaying of debts.
Capital expenditure budgeting involves several techniques which includes; determining the net
present value of the asset to buy, determining its payback period,its cashflow or its internal rate
of return. Capital budgeting has attracted many researchers during the past decates giving rise
to capital budgeting theories such as the Portfolio theory by Markowitz in 1952 which is
concerned with risk and return. He argues that budgeting shoulod be done with respect to the
assets expected return and risk with a general objective of maximizing the companys value. This
theory aims at answering the shortcomings of the classical economic approach of budgeting
which regards money as neutral and in our case, bu8dgeting is done in relation to an assets
returns.
The bank is concerned only with expected value of the asset aiming at maximizing the benefits
of investment considering its risks andv returns.Portfolio theopry differs with the concept of
capital budgeting in that, in the budgeting problem, the variable can only take the value of one
or zero; funds are invested in a particular project or they are not. The portfolio problem also
assumes that all investors are expected utility maximiers - who can get maximum satisfaction
from their economic decisions.
