ABSTRACT
This topic focuses on analytical methods that can be used to assess the merit
of long-term investment proposals. The process of rationing funds to long-
term investment proposals is often referred to as ‘‘capital budgeting’’. In the
context of financial management, the term ‘‘capital’’ is used when referring
to long-term funds (we talk of a company ‘‘raising capital’’ when it issues
more equity finance or borrows long-term debt). In the earlier chapter
concerned with budgeting, it was noted that the ‘‘budget’’ relates to plans for
the forthcoming year. It follows that ‘‘capital budgeting’’ relates to longer-
term budgeting, i.e., decision-making concerned with investing in fixed
assets such as laundry or kitchen equipment, or the decision to refurbish
rooms. As a large proportion of a hotel’s assets are fixed assets, it is evident
that capital budgeting is an important decision-making area for hotel
managers.
