Dipendra Kumar Chaudhary


Capital budgeting is a process of planning capital expenditure which is to be made to maximise the long-term profitability of the organisation. Capital budgeting is a long-term planning exercise in selection of the projects which generates returns over a number of years in future and the heavy expenditure is to be incurred in the initial years of the project to generate returns over the life of the project. The term capital budgeting refers to planning for capital assets. The capital budgeting decision means a decision as to whether or not money should be invested in long-term projects such as installing a machinery or creating additional capacities to manufacture a part which at present may be purchased from outside. It includes a financial analysis of various proposals regarding capital expenditure. The Finance Manager has various tools and techniques by means of which he assists the management in taking a proper capital investment decisions. For purposes of investment appraisal, the cash flow is the incremental cash receipts less the incremental cash expenditures solely attributable to the investment in question.

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