Capital Budgeting

Capital Budgeting

Capital budgeting refers to actions relating to planning and financing of long term projects.  It involves an investment concept—a company must pay out funds now in the hopes of some future return.  Typical capital budgeting decisions include:

Expansion decisions

Equipment selection decisions

Lease or buy decisions

Cost reduction decision.

There are two broad categories of capital budgeting decisions.  Screening decisions answer the question of whether or not the proposed project meets or exceeds some given standard of acceptance .  Preference decisions refer to ranking the acceptable alternative projects in order of desirability.

The basic difficulty in evaluating long lived projects is that money has ...