What Is a Capital Budget and Why Is It Important

question 50

Essay

What is a capital budget and why is it important?

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Definitions:

Residual Income

Income that remains after all costs and expenses, including minimum required return on investment, have been subtracted.

Operating Assets

Long-term assets used in the operations of a business, including property, plant, and equipment, that generate income.

Net Operating Income

The profit generated from a company’s everyday business operations, calculated by subtracting operating expenses from revenue.

Minimum Required Rate

The lowest rate of return or discount rate acceptable for a project or investment to proceed.