A capital expenditure may be defined as an expenditure the benefits of which are expected...
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Finance
A capital expenditure may be defined as an expenditure the benefits of which are expected to be received over a period exceeding one year. The main characteristic of a capital expenditure is that the expenditure is incurred at one point of time whereas benefits of the expenditure are realized at different points of time in future. Capital budgeting is important because it creates accountability and measurability. Any business that seeks to invest its resources in a project, without understanding the risks and returns involved, would be held as irresponsible.
Capital budgeting is hardly an exact science. If it were, companies would never make bad decisions about expansions, product development, equipment upgrades and other capital projects. The fact that companies do make these kinds of mistakes points to the limitations of capital budgeting. In your view, what are the limitations to capital budgeting?
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