Performing Capital Budgeting

  1. 10.4 Describe how to perform capital budgeting.

How do companies decide whether to launch a major exporting effort, acquire a distribution center, build a new factory, or refurbish industrial equipment? Firms have limited resources and cannot afford to invest in every project opportunity. The purpose of capital budgeting is to help managers decide which international projects provide the best financial return.

The decision depends on the project’s initial investment requirement, its cost of capital, and the incremental cash flow or other advantages it can provide. Many variables affect the potential profitability of a venture. Investors in the fast-food industry consider the cost of alternate locations and the ...

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