Capital Budgeting Process Involves :

·               Generating long-term investment proposals which are consistent with a firm’s long term objectives

·              Estimating the relevant after-tax incremental cash flows for these project proposals

·              Evaluating these cash flows

·             Selecting the project that will maximize shareholders’ wealth

·               Reevaluating these projects from time to time for control purposes and carrying out post-audits for completed projects.

Types Of Capital Budgeting Projects:

·               Independent projects-projects unrelated to each other where a decision to accept one project will not affect the decision to accept another

·               Mutually exclusive projects-the decision to choose only one project from the many being considered.

Types Of Capital Budgeting Decisions:

·              Capital Budgeting Decision for Expansion purposes or

·              For replacement of existing assets