Lesson: Capital Budget

In this lesson, Nick Palazzolo, CPA, demystifies the concept of capital budgets, highlighting their unique nature compared to recurrent financial activities like production and sales. He delves into how an organization plans significant expenditures such as purchasing new machinery or constructing new facilities, and how these investments are financed, whether through debt or equity. Using a dynamic, illustrative example, Nick explains how to evaluate the costs and financing options for capital additions, such as buildings and equipment, over a multi-year period. He emphasizes the importance of understanding financing as a crucial part of capital budgeting, especially given its long-term commitment and the need for careful consideration of cash flow and credit availability.