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Capital budgeting analysis imperative for the firm

State why is capital budgeting analysis so imperative for the firm?

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Fundamental goal of financial manager is to increase the shareholder wealth.  Capital investments with positive NPV or APV contribute to shareholder wealth.  Furthermore, capital investments normally represent huge expenditures in comparison to the value of entire firm.  These investments compute how effectively the firm will generate its product.  Accordingly, capital expenditures compute the long-run competitive position of firm in the product marketplace. 

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