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The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. The firm’s investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision.
The capital budgeting has following characteristics:
The exchange of current funds for future benefits.
The funds are invested in long-term assets.
The future benefits will occur to the firm over a series of years.
Hence the projects which are of long term nature and above characterstics require detailed analysis in the capital budgeting processes.
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