Capital Budgeting
The process of evaluating and selecting long-term investments based on expected returns and alignment with company objectives, using techniques like NPV and IRR.
Capital Budgeting
The process of evaluating and selecting long-term investments or capital expenditures based on expected returns and alignment with company objectives.
For example, a manufacturing company might use capital budgeting techniques like Net Present Value and Internal Rate of Return to evaluate a $2 million investment in new production equipment, comparing projected cash flows against the required rate of return.
Capital budgeting decisions have long-term implications for a company’s financial position, competitive stance, and operational capabilities. The process typically involves identifying investment opportunities, estimating cash flows, applying evaluation techniques, and implementing post-investment reviews to assess actual performance against projections.