Explain various steps involved in capital budgeting process
Answers
Capital budgeting is perhaps the most important decision for a financial manager. Since it involves buying expensive assets for long-term use, capital budgeting decisions may have a role to play in the future success of the company. The right decisions made by the process of capital budgeting will help the manager and the company to maximize the shareholder value which is the primary goal of any business.
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CAPITAL BUDGETING PROCESS
The capital budgeting process includes identifying and then evaluating capital projects for the company. Capital projects are the ones where the cash flows are received by the company over long periods of time which exceeds a year. Almost all the corporate decisions that impact future earnings of the company can be studied using this framework. This process can be used to examine various decisions like buying a new machine, expanding operations at another geographic location, moving the headquarters or even replacing the old asset. These decisions have the power to impact the future success of the company. This is the reason the capital budgeting process is an invaluable part of any company.