Capital budgeting

For the budget allocated to ongoing expenses and revenue, see Operating budget.

Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as acquisition or replacement of machinery, construction of new plants, development of new products, or research and development initiatives are worth financing through the firm's capitalization structures, which may include debt, equity, or retained earnings. It is the process of allocating resources for major capital, or investment, expenditures. An underlying goal, consistent with the overall approach in corporate finance, is to increase the value of the firm to the shareholders.

Capital budgeting is typically considered a non-core business activity as it is not part of the revenue model or models of most types of firms, or even a part of daily operations. It holds a strategic financial function within a business. One example of a firm type where capital budgeting is possibly a part of the core business activities is with investment banks, as their revenue model or models rely on financial strategy to a considerable degree.

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