First of all let us understand purpose of Capital budgeting

The main purpose of capital budgeting is a long term planning for investing in a new project or replacement of an old inefficient equipment and additional equipment or physical plant for meeting the growing business conditions.

By using the capital budgeting , management of company will determine when the organization is able to afford to invest in new project or purchasing new machinery . Capital budgeting involves setting aside moneys each year for large investments that night need to be made. So that, planning, evaluating budgetary alternatives is very important.

Following highlighted points for “money concepts” to keep in mind:

• As we all know that companies capital is always limited
• Company can not invest in too many project at the same time
• Dolhae that borrowed for capital expenditures will cost more money
• today’s cash is worth one dollar-plus, in the sense that it can be held in a bank account and draw interest
• money assigned to capital expenses may sometimes be out to different, more productive uses

Capital budgeting is a very important process as most small or big businesses enterprise. Because any company have resources are limited, therefore the manager need to devote seriously to the capital budgeting process.

So the manager tale only that projects with the highest anticipated return. In this way we can say that capital budgeting is very helpful at the time of investing in a new project or replacement of an old inefficient equipment and additional equipment or physical plant for meeting the growing business conditions.