ABSTRACT
Capital, in a business sense, refers to money, while a budget is basically a plan. So capital budgeting decision methods are the tools firms use to plan how they are going to invest money to grow their business. In this chapter, five different capital budgeting metrics are introduced and used to determine whether a given investment is worthwhile. The differences between the methods, both theoretical and practical, are discussed at length. The chapter also discusses the method for evaluating capital projects, which uses accounting methodology to determine the cash flows for a given project. Those cash flows are what are used in the five capital budgeting methods discussed. The method for determining the firm’s optimal capital budget for the coming year is also discussed.
