An Introduction to Capital Budgeting

Abstract

Capital budgeting is concerned with how firms should evaluate projects and make capital investment decisions. Numerous factors enter into the formulation and implementation of corporate investment policy. These include such things as the cost and expected profitability of the project investment, determination of the investment’s appropriate return, project risk management and mitigation, the project’s optimal capital structure, the timing of the investment and the conditions under which it is economically rational to suspend or abandon rather than continue with project operations.