Why is Capital Budgeting Important in Business?

[Suba]

Capital budgeting is a method for assessing the feasibility of a project, especially long-term projects, such as developing a new business/branch, purchasing fixed assets, etc. Some methods frequently used in capital budgeting include NPV, IRR, profitability index, payback period, and so on.

So, essentially, capital budgeting is part of business financial management, which focuses on assessing the feasibility of an investment project. So why is capital budgeting important in business?
1. Assisting in Making Investment Decisions
2. Optimizing Resource Use
3. Avoiding Investment Risk
4. Long-Term Planning

 

[Fidelia]

Capital budgeting determines if a project is worth embarking on by a business in terms of profitability.