Section 1
Introduction to Capital Budgeting
By Boundless
Capital budgeting is the planning process used to determine which of an organization's long term investments are worth pursuing.
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The main goals of capital budgeting are not only to control resources and provide visibility, but also to rank projects and raise funds.
Capital budgeting requires a thorough understanding of cash flow and accounting principles, particularly as they pertain to valuing processes and investments.
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Several methods are commonly used to rank investment proposals, including NPV, IRR, PI, payback period, and ARR.
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NPV and PI assume reinvestment at the discount rate, while IRR assumes reinvestment at the internal rate of return.
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Long-term financing is generally for assets and projects and short term financing is typically for continuing operations.