Capital Budgeting

Also referred as investment appraisal. Capital Budgeting is the planning and evaluation of long term investment projects and determining the long term investment projects a firm or company should engage in. A capital budgeting is the analysis of different investment projects to selects a best long term investment that match the needs of company. The investment projects can be research and development projects, purchasing new fixed assets, getting the new plant and machinery etc

To answer the question "what long term investments a company should take on”, the firms or companies use the different capital budgeting techniques, and all have their own merits and demerits or drawbacks

  • Net present value
  • Internal rate of return or IRR
  • Profitability index
  • Average accounting return or AAR
  • Payback period
  • Modified internal rate of return
  • Equivalent annuity