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Of the various methods of capital budgeting, the Net present value (NPV) method is considered to be the superior method to analyze a project or investment.
What is capital budgeting?
The planning process known as capital budgeting and investment appraisal in corporate finance is used to assess whether an organization's long-term investments, such as new machinery, replacement of existing machinery, new plants, new products, and research and development projects, are worthwhile to fund with cash through the firm's capitalization structures (debt, equity or retained earnings). It involves deciding how much money to set aside for important capital, or investment, expenses. Increasing the firm's value to the shareholders is one of the overarching objectives, in line with the general approach in corporate finance.
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