Capital Budgeting

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What is Capital Budgeting? Meaning.

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:


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Capital Budgeting Special Interest Group.



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Forum about Capital Budgeting.


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Best Practices

The top-rated topics about Capital Budgeting. Here you will find the most valuable ideas and practical suggestions.


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Expert Tips

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Information Sources

Various sources of information regarding Capital Budgeting. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Capital Budgeting and Risk Management Techniques

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