Capital Budgeting Decision Tools. 05/17/06. Introduction. Capital Budgeting is the process of identifying, evaluating, and implementing a firm’s longer term (greater than a year) investment opportunities. It seeks to identify investments that will increase a firm’s shareholder wealth.
where CFtis the cash flow in year t and r is the hurdle rate for the project.
1How do CFOs make capital budgeting and capital structure decisions? Graham and Harvey, Journal of Applied Corporate Finance 15 (2002).