The usefulness of various capital budgeting methods depends on their specific applications. Although financial textbooks often recommend the use of NPV and IRR methods, other methods are also heavily used by corporations.
Capital budgeting is also relevant to external analysts in estimating the value of stock prices. Theoretically, if a company invests in positive NPV projects, the wealth of its shareholders should increase.
The integrity of a firm's capital budgeting processes can also be used to show how the management pursues its goal of shareholder wealth maximization.
|fsammari: this stuff is well- summarized|
|merc5559: I agree. I was able to fly through this section.|