Budget is made for the long term capital investment of capital expenditure. The process of preparing capital budget is known as capital budgeting. capital budgeting is related with designing and carrying out through a systematic investment program. At last we can say that capital budgeting is the process of making investment decision in fixed asset or capital expenditure. The capital budgeting consist the following-
- The Search for more profitable investment proposals
- Investing the proposals.
- To find out the effect of accepting the proposals.
- Making analysis of profitability of each and every project at each stage.
- Project execution.
according to philippatos - capital budgeting is concerned with the allocation of the firm's score financial resources among the available market opportunities. The consideration of investment opportunities involved the comparison of the expected future. Streams of earning from the project, with the immediate and subsequent stream of Expenditure for it.
according to R. M Lynch capital budgeting consist in planning for development of available capital for the purpose of maximizing the long-term profitability of the firm.
Method of Capital Budgeting
- Degree of urgency
- Payback period method.
- Unadjustment return on investment
- Present value method.
- Internal rate of return method. and
- Net present value method.
