Capital Budgeting

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Description of Capital Budgeting. Explanation.


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Definition Capital Budgeting. Description.

Capital Budgeting (CB) is the internal process of identifying, evaluating, and implementing a firm's investment opportunities. In other words it is the process of preparing a plan for the raising of capital funds and for their deployment.

It can also be described as the process of determining which potential long-term projects are worth undertaking. Examples of typical CB projects are the purchase of new equipment or the introduction of a new product.

Goals of Capital Budgeting

CB aims at analyzing and agreeing on those investments that will enhance a firms competitive advantage and increase shareholder wealth.

Poor capital budgeting decisions will however decrease shareholder value and may ultimately result in a company's bankruptcy.

Multiple Investments and Inflows

The typical capital budgeting decision involves a large, initial and up-front investment, followed by several smaller additional investments and a series of smaller cash inflows (returns).

Capital Budgeting Sources

For an incorporated business, funds may be obtained from a wide variety of sources. The most important ones amongst these are:

  • Issuing ordinary shares
  • Issuing preference shares
  • Issuing loans

Capital Budgeting Methods

To determine what are the right investments for an organization, several capital budgeting techniques are being used. The main ones are:

Capital Budgeting Forum
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Capital Budgeting Special Interest Group

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Capital Budgeting and Risk Management Techniques

Presentation about advanced capital budgeting, including the following sections:
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3. Importance of crit...
Usage (application): Capital Budgeting, Risk Management

Analyzing Financial Feasibility

Presentation about Feasibility Studies in the Financial Area. The presentation includes the following sections:
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Usage (application): Financial Feasibility Analysis, Project Selection, ROI, NPV, IRR


Capital Budgeting


Capital Budgeting


Capital Budgeting


Capital Budgeting

Compare also: Portfolio Analysis

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