What is Capital Budgeting?
Resources can either be consumed in the present of invested to generate future consumption. The choice between current consumption and investments is made in order to achieve ‘inter-temporal balance’ between current bland future consumption – Wirschleifer, 1980.
Such that, the more current consumption that is sacrificed, the more future consumption that will accrue and vice versa.
Investment is expenditure on long term and fixed assets. Consequently, the proportion of current resources which is to be invested in long term asset is ‘capital budget’ while the process of allocation of scarce resources among long term assets is called Capital Budgeting.
Capital Budgeting as a process is made of three (3) stages which are;
Project Generation
Project Evaluation and
Project Selection
Somtochukwu
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