How does Capital Budgeting function? Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases it should accept, and which should be declined. This process is used to create a quantitative view of each proposed fixed asset investment, thereby giving a rational basis for making a judgment. There are several capital budgeting analysis methods that can be used to determine the economic feasibility of capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return. Capital budgeting is used by companies to evaluate major projects and investments, such as new plants or equipment. The process involves analyzing a project's cash inflows and outflows to determine whether the expected return meets a set benchmark. The capital budgeting process is a measurable way for businesses to determine the long-term economic and financial profitability of any investment project. A capital budgeting decision is both a financial commitment and an investment.

Aparika Sharma

106 resources

0

0

1

Like