State the second element of capital budgeting decision
The second element of capital budgeting decision is the analysis of risk and uncertainty. As the benefits from investment proposals extend into the future, their accrual is uncertain. They have to be estimated under different assumptions of the physical volume of sale and level of prices. An element of risk in the sense of uncertainty of future benefits is, hence, involved in the exercise. Returns from capital budgeting decisions should, hence, be evaluated in relation to the risk associated with it.