The Palgrave Encyclopedia of Strategic Management

Living Edition
| Editors: Mie Augier, David J. Teece

Capital Budgeting

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DOI: https://doi.org/10.1057/978-1-349-94848-2_666-1
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Definition

Capital budgeting is a planning and decision-making process used to identify and evaluate opportunities to invest in long-term physical assets, and to allocate capital funds to selected investments.

Capital budgeting decisions are among the most critical managerial decision made in a firm because ‘almost everything about a firm – its physical assets, and how they are used; its people, reputation, and skills; its products and services; its customers, channels of distribution, and brands; its financial performance – can be traced back to particular [investment decisions made] years or even decades ago’ (Barwise et al. 1987: 2).

Development of the techniques used to evaluate capital investment opportunities has been largely the domain of financial economists. In the 1950s, the pioneering work of Dean (1951) and others marked the beginning of modern capital budgeting based on the use of discounted cash flow (DCF) approaches to capture the expected economic performance of an...

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References

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Copyright information

© The Author(s) 2016

Authors and Affiliations

  1. 1.Whitman School of ManagementSyracuseUSA