capital budgeting


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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.

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.
References in periodicals archive ?
Hence, the first step in capital budgeting is understanding of the cost of capital; moreover, the next step is the application of methods and techniques that we can choose the best and most economical investments.
The locus of capital budgeting frequently is found in the finance department, the budget office, or the planning and development department.
The author's main objective is to present a general overview of the main capital budgeting concepts rather than to provide a "how to do" recipe collection for practitioners actively involved in the management of real investment projects.
This article explains budgeting models currently being used by large companies, the division responsible for evaluating capital budgeting projects, the most important and most difficult stages in the capital budgeting process, the cost of capital cutoff rate, and the methods used to adjust for risk.
The accounting emphasis on the attest function and objectivity leads to a distinction between recording income for reporting purposes and using cash-flow information for capital budgeting decisions.
NPV vs IRR: With Capital Budgeting, Which Do You Choose?
A truly effective capital budgeting plan would do what states and companies still quiver to do: aggressively make distinctions between things that truly contribute to the nation's resources-like lowering class size to help disadvantaged kids learn to read-and those whose value ends on the ledger.
Discounted cash flow techniques, and indeed the entire process of capital budgeting, have been evolving slowly in American industry since the late nineteenth century and have come to maturity only in the recent past.
The annual capital budgeting effort is painful for hospitals, which have been forced to develop budgets with inaccurate or out-of-date information using labor-intensive processes," said Nik Fincher, senior director of capital asset services for VHA.
John Vogt, Capital Budgeting and Finance: A Guide for Local Governments provides comprehensive, detailed, and practical information for small- and medium-size local governments about how to plan and finance capital projects.
This course describes the decision points that support capital budgeting within an organization, and continues to explore how a range of techniques (including CVP, NPV, payback, IRR, and ARR) can be used to conduct short- and long-term project evaluations within this process.

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