Capital budgeting is a process of evaluating investments and getting the best return on investment.

  An organization often faces the challenge of choosing between two projects / investment or purchase vs. change decision. Ideally, an organization wants to invest in all profitable projects but due to the limited availability of capital, an organization has to choose between different projects / investments. Capital budget as an idea affects our daily life.

  Let's look at an example- your mobile phone has stopped working! Now, you have two choices: either buy a new one or repair the same mobile. Here, you can conclude that the cost of mobile repair extends the life of the phone. However, there is a possibility that the cost of buying a new cell phone will be less than the cost of repairing it. So, you have decided to replace your cell phone and you look at different phones that suit your budget!