Capital budgeting is the process of evaluating and determining whether a capital investment will be beneficial in the long run. It involves analyzing the cost of a proposed project, the expected returns generated by it and the risks associated with it. The Capital Budgeting Formula is designed to help assess these aspects to determine what the most profitable option is. Calculating cash flows, net present value (NPV) and internal rate of return (IRR) are all elements to this formula. In essence, capital budgeting helps a business decide which projects to allocate its resources towards. That makes it an essential tool for any modern organization that wants to remain successful and competitive in the market.