DEFINE AND EXPLAIN CAPITAL BUDGETING WITH A BRIEF EXPLANATION OF
â?¢ Discounted payback period
â?¢ Profitability index
â?¢ Payback period
Capital budgeting is a process in which a business determines whether a project such as building a new plant or purchasing a new machine is worth pursuing. A potential project's cash inflows and outflows which are generated over its lifetime are analysed in order to determine whether the returns generated meet a sufficient target benchmark. Ideally a business should pursue any and all projects that increase shareholder value. However, because the amount of capital available at any given time for new projects is limited, management uses capital budgeting techniques to determine which projects will yield the most return over an applicable period of time. ...
The expert defines and explains capital budgeting.