Unit 8: Capital Budgeting
Now that we understand how businesses create budgets to manage the day-to-day operations of a business, let's focus on how they use capital budgeting to evaluate long-term investments. For example, should a company replace its machinery now, or wait another three years to make a major investment when revenue may be greater and the equipment may cost less? Business managers typically prepare their capital budget process when they create their master budget. They base their decision to choose or reject various projects on the time value of money and discounted cash flows.
Completing this unit should take you approximately 5 hours.
8.1: Capital Budgeting and Decision-Making
8.2: Net Present Value and Time Value of Money
8.3: The Internal Rate of Return
8.4: Other Factors Affecting NPV and IRR Analysis
8.5: The Payback Method
8.6: Complexities of Estimating Cash Flows
Unit 8 Assessment
Unit 8 Conclusion
This unit has reviewed capital budgeting and how it can be used for project selection. A capital budget is a normal activity that is usually conducted as the master budget is prepared. In the next unit, we will explore performance evaluation in decentralized organizations.