Capital Budgeting is a process which analyzes the frequency of return on long-term & short-term investments to be made by a business. Capital Budgeting is same as Investment appraisal.
Capital Budgeting is an important & complex task as the analysis needs to be accurate to determine the return value of investments.
There are methods to perform capital budgeting. Methods are:
- Net present value method
- Accounting rate of return method
- Internal rate of return method
- Payback period method
Net present value method: Net present value method is a commonly used method in capital budgeting also it’s the most accurate method amongst other methods being used for capital budgeting.