Capital Budgeting:
Capital budgeting is the process of generating, evaluating, selecting and following-up on capital expenditure projects. The term Capital budgeting is used interchangeably with capital expenditure decision, capital expenditure management & long-term investment decision.
The methods employed to evaluate the worth of capital expenditure proposals are known as capital budgeting techniques .The popular methods are-
(a)Â Â Â Average rate of return
(b)Â Â Pay back period
(c)Â Â Â Net present value
(d)Â Â Internal rate of return
(e)Â Â Â Profitability index
The following are the basic features of capital budgeting-
- Potentially large anticipated benefits
- A relatively high degree of risk
- A relatively long time period between the initial outlay & the anticipated return
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