Capital Budgeting

[SiddAnand89]

Capital budgeting is the process by which a business determines and evaluates potential major projects or investments. Here are some key aspects and methodologies within capital budgeting:

Capital Budgeting Techniques
Net Present Value (NPV)

Definition: NPV is the sum of the present values of incoming and outgoing cash flows over a period of time.
Calculation:
𝑁
𝑃
𝑉
=
∑
(
𝐶
𝑡
(
1
+
𝑟
)
𝑡
)
−
𝐶
0
NPV=∑(
(1+r)
t

C
t
​

​
)−C
0
​

𝐶
𝑡
C
t
​
= Cash inflow during the period
𝐶
0
C
0
​
= Initial investment
𝑟
r = Discount rate
𝑡
t = Time period

[Uche Nnamdi]

Strategic Path to Growth

Capital budgeting is a financial process companies use to evaluate and select long-term investments, such as new machinery, expansions, or new products, with the goal of maximizing shareholder value. The journey begins with the company identifying potential investment opportunities. These opportunities could be anything from acquiring new machinery, expanding into new markets, developing new products, or upgrading existing infrastructure. The goal is to find projects that align with the company’s strategic objectives and promise future benefits.

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