CAPITAL BUDGETING - Texas Southern University

CAPITAL BUDGETING What is CAPITAL BUDGETING ? Long-term decisions, typically involve longer time horizons, cost larger sums of money, and require a lot more information to be collected as part of their analysis, than short-term decisions. The investment of funds into CAPITAL or productive assets, which is what CAPITAL BUDGETING entails, meets all three of the above criteria and therefore is considered a long-term decision. The efficacy of CAPITAL BUDGETING decisions can have long-term effects on a firm and are thus to be made with considerable thought and care.

A capital budgeting decision will require sound estimates of the timing and amount of cash flow for the proposal. 3. The capital budgeting model has a predetermined accept or reject criterion. Payback Period This method simply tries to determine …

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