Managerial Economics

Chapter 13

Capital Budgeting and the Decision to Invest

After studying this chapter, you should be able to understand:

• Capital budgeting is the process, which involves the planning of the capital expenditures in the various investment projects.
• Capital budgeting or the planning of long-term expenditures is very crucial for a firm.
• Capital budgeting can increase the value of a firm.
• If the present value of the future cash flow from the project is smaller than the initial cost of the project, then the firm should not undertake the project.
• The firm will determine its optimum stock of capital by producing at the level, where the marginal revenue productivity of capital equals the marginal cost of capital.
• In deciding among two or more projects, ...