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An example of capital budgeting in daily life could be a household considering purchasing a new car. The family would need to estimate the cash inflows and outflows associated with the purchase, such as the initial cost, maintenance expenses, fuel costs, and potential resale value.
Costs for routine maintenance work necessary to keep a facility or asset in useful condition are not typically included in the capital budget.
Accrual principle is not followed in capital budgeting.
There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Profitability Index, Internal Rate of Return, and Modified Internal Rate of Return.
It does not include sunk costs.
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Key Takeaways. Capital budgeting is the process by which investors determine the value of a potential investment project. The three most common approaches to project selection are payback period (PB), internal rate of return (IRR), and net present value (NPV).
It does not include sunk costs.
Conversely, non-cash expenses like depreciation are not included in capital budgeting (except to the extent they impact tax calculations for after tax cash flows) because they are not cash transactions.

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