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What is capital budgeting? What is its importance?
Capital budgeting is a process making system which is used to select and evaluate long term investments that is fixed assets investigation. It requires initial outlay and it also expect to produce the benefits and result over a period of over a year. The importance of capital budgeting is that the proper decision can be made after seeing the capital budget increases the firm's value and also the shareholders' wealth. It is a critical measuring tool for a company which helps the firm to stay in competition as the expansion of the business takes place for example purchasing of equipments to produce additional and new products.
What is the process of capital budgeting?
The process of capital budgeting involves long term investment generation where they are more consistent with the long term objectives. It estimates the incremental cash flow which has been a proposals given to the project which is been considered after taking tax. After this the cash flows estimations takes place and then selection of the project takes place which maximize the shareholders' wealth.
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