In business, it is crucial to allocate funds to the most profitable use, since the primary purpose of a company is to maximize profits. Capital budgeting enables managers to estimate the viability of different projects before investing; this facilitates informed decision making. Capital budgeting provides an estimate of the value of an investment. It therefore helps managers to allocate the correct amount of funds to a project, and as a result, avoid over-investing or under-investing. This process thus leads to an increase in the value of the firm. Capital budgeting enables the shareholders of a firm to evaluate the probability of risk of each project and thus select the project with the least uncertainty and risk. This process helps businesses in making strategic plans by providing a method of forming projections of future cash inflows

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