Capital Budgeting Process, Types Of Capital Projects And Types Of Capital Budgeting Decisions

Earlier article explain what’s capital budgeting and its importance.

Append below explains the process, types of capital projects and capital budgeting decisions a firm needs to embark on:

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




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