GENERAL KNOWLEDGE

Detailed explanation-1: -Capital budgeting is important because it creates accountability and measurability. Any business that seeks to invest its resources in a project without understanding the risks and returns involved would be held as irresponsible by its owners or shareholders.

Detailed explanation-2: -Capital budgeting is used by companies to evaluate major projects and investments, such as new plants or equipment. The process involves analyzing a project’s cash inflows and outflows to determine whether the expected return meets a set benchmark.

Detailed explanation-3: -Capital Budgeting is the process of making financial decisions regarding investing in long-term assets for a business. It involves conducting a thorough evaluation of risks and returns before approving or rejecting a prospective investment decision. This process is also known as investment appraisal.

Detailed explanation-4: -Capital budgeting decisions are based on comparison of a project’s initial investment outlay to the future incremental cash flows of the project and its terminal cash flow. Was this answer helpful?

Detailed explanation-5: -Capital budgeting involves identifying the cash in ows and cash out ows rather than accounting revenues and expenses owing from the investment. For example, non-expense items like debt principal payments are included in capital budgeting because they are cash ow transactions.