Capital budgeting is the process of evaluating long-term investment projects. It involves analyzing expenditures that will generate benefits over multiple years. The key steps in capital budgeting are project proposal, review and analysis, decision making, implementation, and follow-up. Techniques for evaluating projects include payback period, net present value (NPV), and internal rate of return (IRR). NPV and IRR are more sophisticated as they discount cash flows to determine if a project will earn a return higher than the firm's cost of capital.