What is 'capital budgeting'?

Capital budgeting is the evaluation and selection of long-term investments that can yield returns over an extended period. This process is crucial for businesses and organizations as it involves identifying, analyzing, and deciding on investments in projects or assets that require significant financial resources. The goal of capital budgeting is to allocate funds effectively to projects that are expected to generate value, increase cash flow, and contribute to the overall growth and profitability of the organization.

The significance of capital budgeting lies in its ability to ensure that resources are being used efficiently and strategically, allowing a business to prioritize investments based on expected returns and alignment with corporate goals. Techniques commonly used in capital budgeting include Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period, which help decision-makers assess the potential financial outcomes of proposed investments.

The other options focus on different aspects of business management—marketing, operating expense management, and cash flow monitoring—none of which specifically address the long-term investment decisions central to capital budgeting. This clarity makes option B the most accurate representation of the concept.