chapter  10
10 Pages

Project selection criteria

Capital budgeting is the process of deciding whether or not to commit resources to a project whose benefits will be spread over a number of future years. The most important factors affecting the evaluation of capital investment are the life of the project and the timing of cash inflows and outflows. Discounted cash flow (DCF) analysis forms the basis for all capital budgeting techniques that take account of the changing value of money. Most experts agree that discounting is fundamental to the correct evaluation of projects involving differential timing in the payment and receipt of cash especially large-scale projects with long time horizons and irregular cash flows.