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How should capital expenditure be budgeted for?

In this chapter we will be looking at how investment in fixed assets should be planned and budgeted for. We will also examine how you can budget and plan for capital expenditure.

What is capital expenditure?

Capital expenditure is money that is spent on long-term fixed assets (such as plant and equipment) usually with a view to gaining long-term benefits. Since the expenditure should be giving the company long-term benefits, it should be planned on a long-term basis. In smaller organisations, the main factor determining whether or not a company can invest is whether or not it can afford to!

In smaller organisations, decisions on capital expenditure may well be made on the basis of ‘gut feel’, ...

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