Steps in capital budgeting process

18 Strategy is the foundation of a successful capital budgeting system. Strategy is the framework within which resources are marshaled in pursuit of goods. Strategy also tells people whereto search for profitable capital investments. Successful capital budgeting and shareholder wealth maximization are therefore, dependent on sound strategy (Seitz, 1990).
ii.
Evaluate investment opportunities
The proposed costs and benefits are estimated and then converted into a series of cash flows to which various capital budgeting techniques are applied to measure the investment merit of the potential outlay. Once the economic analysis is completed, a summary report, often with recommendation is submitted to the decision makers
(Yaregal, 2007). The evaluation of capital investment does not end with comparison of the present values of costs and benefit. Because companies often lack sufficient resources to acquire all attractive investments they must make choices. An investment might have good cash flow characteristics but seriously reduced reported income for several years. Conflicts between accounting income and other measure of profitability would not occur in a world of perfect information, but these conflicts are important in the world in which we live (Seitz, 1990).
iii.
Decision making (select investment)
Decision making is the acceptance or rejection of the proposal based on a selection criterion. Firms typically delegate capital expenditure authority on the basis of certain dollar limits. Generally the board of directors reserves the right to make final decisions on capital expenditures requiring outlays beyond a certain amount
(Yaregal, 2007). Qualitative issues will be considered before a decision is made whether to proceed.

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