Short Communications / Technical Notes

Capital Budgeting Techniques Explained: Evaluating Investment Decisions for LongTerm Value Creation

Daniel R. Whitaker

Received 20 Apr 2026, Published online: 30 Jun 2025

Published in Volume 5, Issue 1, 2025, pages 4-6

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Abstract

Capital budgeting is the process of evaluating and selecting long-term investment projects that  are aligned with an organization's strategic objectives. Effective capital budgeting ensures that scarce financial resources are allocated to projects with the highest potential for value  creation. This paper explores the core capital budgeting techniques used in financial decisionmaking, including Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Profitability Index (PI), and Accounting Rate of Return (ARR). Each technique is analyzed in terms of methodology, advantages, limitations, and applicability in different decision-making contexts. The paper also addresses risk assessment methods such as sensitivity analysis, scenario analysis, and real options, emphasizing the importance of integrating risk into capital budgeting decisions. Through practical examples and industry applications, this paper provides a clear and comprehensive understanding of capital budgeting tools for both financial and non-financial managers. 

Keywords

  • Capital Budgeting
  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)
  • Payback Period
  • Profitability Index
  • Accounting Rate of Return

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© 2025 Journal of Magnetism and Its Applications. This article is published under CC BY 4.0.

How to cite

Daniel R. Whitaker , D. R. W. (2025). Capital Budgeting Techniques Explained: Evaluating Investment Decisions for LongTerm Value Creation. Journal of Magnetism and Its Applications, 5(1), 4-6.

How to Cite

Capital Budgeting Techniques Explained: Evaluating Investment Decisions for LongTerm Value Creation. (2025). Journal of Magnetism and Its Applications, 5(1), 4-6. https://www.jourmag.org/index.php/jma/article/view/134