Chapter 13

Capital Budgeting and the Decision to Invest

After studying this chapter, you should be able to understand:

  • Capital budgeting is the process, which involves the planning of the capital expenditures in the various investment projects.
  • Capital budgeting or the planning of long-term expenditures is very crucial for a firm.
  • Capital budgeting can increase the value of a firm.
  • If the present value of the future cash flow from the project is smaller than the initial cost of the project, then the firm should not undertake the project.
  • The firm will determine its optimum stock of capital by producing at the level, where the marginal revenue productivity of capital equals the marginal cost of capital.
  • In deciding among two or more projects, ...

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