MANAGEMENT

Detailed explanation-1: -Capital budgeting decision may be defined as the firm’s decision to invest its funds in the long term assets in anticipation of an expected flow of benefits over a number of years. It involves a current outlay or series of outlays of cash resources in return for an anticipated flow of future benefits.

Detailed explanation-2: -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.

Detailed explanation-3: -Long term investment decision involves committing the finance on a long-term basis. For example, making investment in a new machine or replace an existing one or acquiring a new fixed asset or opening a new branch, etc.

Detailed explanation-4: -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-5: -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.