Capital budgeting is the process of making long-term investment decisions in a company. It involves evaluating potential investments, determining which projects will yield the highest returns, and allocating resources accordingly. This decision-making process is crucial for the growth and success of a business as it involves investing in projects that will generate long-term benefits for the company.

- Capital budgeting helps businesses identify and select projects that will increase profitability and shareholder value.
- It allows companies to allocate resources effectively and efficiently, ensuring that investments are made in projects with the highest potential returns.
- Through capital budgeting, businesses can assess the risk associated with each investment and make informed decisions to mitigate these risks.
- It helps in determining the optimal capital structure of the company by balancing debt and equity financing.

There are various methods of capital budgeting, including:
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Payback Period
- Profitability Index
Each of these methods has its own advantages and limitations, and companies may use a combination of these methods to evaluate potential investments.
In conclusion, capital budgeting plays a crucial role in the long-term success of a business by helping companies make informed investment decisions that will maximize returns and create value for shareholders. It is a key aspect of financial management and strategic planning for any organization.

- Long term investment decision is also known as capital budgeting.
- It involves evaluating and selecting investment opportunities that require significant capital expenditure.
- The decision has a long-term impact on the organization's profitability and growth.
- Capital budgeting involves analyzing various investment options and choosing the most suitable projects.
- It helps in determining the allocation of financial resources to different investment projects.