Capital budgeting

The process of choosing the firm's long-term assets.

Capital Budget

A plan for a company's capital expenditures. Capital expenditures are payments made over a period of more than one year. They are used to acquire assets or improve the useful life of existing assets; an example of a capital expenditure is the funding to construct a factory. Making a capital budget must account for the potential profitability of the plans involved. Calculating the net present value or the internal rate of return are two methods for determining a capital budget.

capital budgeting

Corporate evaluation of long-term investment proposals, generally by means of discounting estimated future cash flows.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

capital budgeting

the process of planning and controlling CAPITAL expenditure within a firm. Capital budgeting involves the search for suitable investment opportunities; evaluating particular investment projects; raising LONG-TERM CAPITAL to finance investments; assessing the COST OF CAPITAL; applying suitable expenditure controls to ensure that investment outlays conform with the expenditures authorized; and ensuring that adequate cash is available when required for investments. See INVESTMENT APPRAISAL, BUDGETING.

capital budgeting

the planning and control of CAPITAL expenditure within a firm. Capital budgeting involves the search for suitable INVESTMENT opportunities; evaluating particular investment projects; raising LONG-TERM CAPITAL to finance investments; assessing the COST OF CAPITAL; applying suitable expenditure controls to ensure that investment outlays conform with the expenditures authorized; and ensuring that adequate cash is available when required for investments. See INVESTMENT APPRAISAL, DISCOUNTED CASH FLOW, PAYBACK PERIOD, MARGINAL EFFICIENCY OF CAPITAL/INVESTMENT.