Capital budgeting, & investment appraisal, in capitalization managers debt, equity or retained earnings. it is the process of allocating resources for major capital, or investment, expenditures. An underlying goal, consistent with a overall approach in corporate finance, is to increase the service of the firm to the shareholders.
Capital budgeting investments and projects must be funded through excess cash portrayed through the raising of debt capital, equity capital, or the ownership of retained earnings. Debt capital is borrowed cash, usually in the hold of bank loans, or bonds issued to creditors. Equity capital are investments produced by shareholders, who purchase shares in the company's stock. Retained earnings are excess cash surplus from the company's present and past earnings.
Each of these domination has its own characteristics re i the required rate of return expected by capital providers, with the consequent impact on overall cost of capital, as well as ii implications for cash flow. The "financing mix" selected will thus issue the valuation of the firm: Corporate finance ยง Capitalization structure discusses these two interrelated considerations .