Capital Budgeting Strategies for Optimal Investment Decisions

Abstract

Capital budgeting is a vital aspect of financial management, serving as the cornerstone for making long-term investment decisions that align with a company’s financial and strategic goals. The focus of this research is to explore the various capital budgeting strategies, the criteria that govern optimal investment decisions, and the practical challenges that firms encounter in this decision-making process. By examining traditional and contemporary capital budgeting techniques like Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Profitability Index (PI), this paper seeks to provide a comprehensive analysis of how businesses determine investment viability. Additionally, it emphasizes the need for integrating risk management techniques, real options theory, and behavioral finance into capital budgeting processes. The paper concludes with recommendations for improving investment decisions in complex and uncertain environments.