Capital budgeting is the planning and development of capital for maximizing long-term profitability. It involves huge, long-term, irreversible investments that have long-term effects. The capital budgeting process identifies investment proposals, screens them, evaluates and selects the best ones, gets final approval, implements them, and provides review. Traditional methods of capital budgeting include payback period and accounting rate of return, while modern methods are net present value, profitability index, and internal rate of return.

1. CAPITAL BUDGETING
Mirza Mohammed Karrar

2. Definition
 According to Lyrich “capital budgeting
consists of planning & development of
available capital for the purpose of
maximizing the long-term profitability of the
business”

3. Characteristics of Capital
Budgeting
 Huge Investment
 Long Term
 Irreversible
 Long Term Effect

4. Capital Budgeting Process
 Identification of various proposals
 Screening or matching proposals
 Evaluation & selection
 Final approval
 Implementation
 Review or feedback

5. Methods of Capital Budgeting
 Traditional
Methods
◦ Pay back period
◦ Accounting rate of
return(ARR)
 Modern Methods
◦ Net Present
Value(NPV)
◦ Profitability Index(PI)
◦ Internal Rate of
Return(IRR)

6. THANK YOU