CHAPTER 8

Capital Budgeting

This concluding chapter introduces the basic concepts and practices associated with capital budgeting. Capital budgets help managers evaluate and prioritize competing capital investment opportunities. Unlike recurring operating expenses—such as insurance premiums, payroll obligations, and property taxes—capital investments refer to large financial resource allocations having long-term consequences. Examples include purchases of manufacturing equipment, replacements of aircraft, launches of new product lines, and acquisitions of other companies. Once a capital investment has been made, it is difficult—if not impossible—to reverse the decision. Thus, it is essential that managers engage in rigorous analyses and make ...

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