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Definition of a "Capital Budget"

A capital budget, sometimes called an investment appraisal, refers to a company or government's budget for major long-term projects. Capital budgeting is the process of deciding which projects will create the largest returns and allocating money accordingly.

  1. Features

    • Companies and governments decide which projects to finance by examining estimates of a project's cash inflows and outflows, the riskiness of the investment and the length of time it will take the project to recover its costs (also called the payback period).

    Examples

    • Examples of capital budget projects include opening a new industrial plant, investing in new equipment, investing in research for a new product or constructing a new building.

    Considerations

    • Capital budgets involve higher expenditures than operating budgets, which include a company or government's day-to-day expenses. They are also longer-term than operating budgets, which usually plan for a year.

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