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Capital Budgeting is an extremely important aspect of a firm's financial management. Although capital assets usually comprise a smaller percentage of a firm's total assets than do current assets, capital assets are long-term. Therefore, a firm that makes a mistake in its capital budgeting process has to live with that mistake for a long period of time.
Capital Expenditure: |
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One that is expected to benefit the firm for a period of time longer than a year; usually much longer. |
Capital Budgeting: |
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Total process of generating, evaluating, selecting and following up on capital expenditures. |
Motivations for Investments/Expenditures: |
• Replacement
• Expansion
• Modernization
• Strategic
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