Chapter 3
Capital Budgeting in a Nutshell
IN THIS CHAPTER
Understanding the theory of capital budgeting
Computing the rate of return on capital
Taking the measure of liquidity
Contemplating risk
Relating capital budgeting to QuickBooks
The challenge for any business is allocating capital, or money. Although you have limited amounts of capital, your ideas and opportunities are often unlimited.
Capital budgeting, in a nutshell, helps you sift through all these ideas and opportunities. Capital budgeting lets you answer questions like the following: Should I replace that key piece of machinery that we use in the factory or get a new delivery truck? Should we buy the building our offices are in? Or should we purchase that competitor’s operation because it’s for sale?
Introducing the Theory of Capital Budgeting
Capital budgeting boils down to the idea that you should look at capital investments (machinery, vehicles, real estate, entire businesses, yard art, and so on) just as you look ...
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