The definition of a capital budgeting project is the process of comparing, evaluating, selecting and following up on capital expenditures to determine the real cost of a hard asset in terms of discounted cash values, or an internal rate of return calculation. The asset is expected to benefit the company for a period of time longer than a year and usually much longer.
One of the reasons that the process is so different from budgeting for results of operations is that the purchase of a capital asset is often a major financial undertaking which will effect the company for years to come; at least, for the life of the asset. In operations, a company buys or makes something, sells it, collects revenue and is done with the transaction. A capital purchase is with the company for years, for better or worse. A mistake can be costly, and this process is actually one of valuing an asset purchase over the expected life of the asset.
A capital asset is normally a ...
A comprehensive 650 word discussion about the process of acquiring capital assets and the planning useful in doing so.