Capital Budgeting, Decision Process, Procedure, Definition. Capital budgeting is the process by which the financial manager decides whether to invest in specific capital projects or assets. In some situations, the process may entail in acquiring assets that are completely new to the firm. In other situations, it may mean replacing an existing obsolete asset to maintain efficiency. During the capital budgeting process answers to the following questions are sought: What projects are good investment opportunities to the firm?
From this group which assets are the most desirable to acquire? How much should the firm invest in each of these assets? Components of Capital Budgeting Initial Investment Outlay:It includes the cash required to acquire the new equipment or build the new plant less any net cash proceeds from the disposal of the replaced equipment. Terminal Cash flow:It includes the net cash generated from the sale of the assets, tax effects from the termination of the asset and the release of net working capital. Add up all the three to get 2.2459. Mines Magazine » The Colorado School of Mines Magazine Website. Elsevier. The National Academies: Advisers to the Nation on Science, Engineering, and Medicine. Mechanical Engineer Students Resource Site.
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