Capital Budgeting And Its Importance

Below explain the meaning of capital budgeting and its importance:

Capital Budgeting:

  •              Is a decision making process of selecting and evaluating long term investments viz investing in fixed assets or capital expenditure(capex)
  •          This will require a substantial initial outlay and expect to produce benefits/results over a period of more than one year


Importance of Capital Budgeting:

  •          Proper decision on capital budget will increase a firm’s value as well as shareholders’ wealth
  •          Capital budgeting is critical to a firm as it helps the firm to stay competitive as it is expanding its business like proposing to purchase equipments to produce additional or new products, renting or owning premises for opening new branches, etc


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