ABSTRACT
This chapter looks at different capital budgeting techniques and criteria such as payback period, net present value, internal rate of return, and break-even analysis. Capital budgeting is the backbone of financial management and making appropriate capital budgeting decisions is vital to achieving the goal of maximizing shareholders wealth. The net present value (NPV) method is another financial tool that managers can use to evaluate the value that a project will return to the company and its shareholders. Capital assets can either be used to replace existing assets or to expand the business through the use of additional assets. Capital projects can also be classified as either independent or mutually-exclusive, depending on the project's impact on other projects. Capital budgeting is the process of identifying, evaluating and using capital to invest in long-term assets or projects. Airlines must decide how to use capital in order to provide value for the company and its shareholders.
