What is a Capital Budgeting? | Importance of Capital Budgeting

What is Capital Budgeting? | Importance of Capital Budgeting

Capital budgeting is the process of evaluating commercial worthiness of a project or investment in a major venture such as purchase or overhaul of plant & machinery, product research & development, new product launch, etc.

Capital budgeting is a very critical process before undertaking any new project since a significant amount of investment is included. Moreover, the impact of the failure of a long term project is much more pervasive than failure in short term projects.

Various techniques are used in capital budgeting such as:

  • Accounting rate of return
  • Net Present Value (NPV)
  • Payback Period
  • Internal rate of return (IRR)
  • Equivalent annual cost

 

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One thought on “What is a Capital Budgeting? | Importance of Capital Budgeting”

  1. Nice article, i like it!

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