What does capital budgeting involve?

Capital budgeting involves choosing which projects or investments a business should pursue to achieve long-term financial growth. This process is essential for a business as it helps in determining the potential return on investment (ROI) of various projects, allowing management to allocate resources effectively.

Through capital budgeting, businesses analyze the expected cash flows, risks, and overall impact of different initiatives, such as purchasing new equipment, expanding operations, or launching new product lines. This decision-making process ensures that the projects selected align with the company's strategic goals and yield the highest possible returns.

The other options focus on different aspects of business management. For instance, deciding the prices of products pertains to pricing strategy, evaluating employee performance relates to human resources management, and planning marketing strategies involves market analysis and promotional efforts. While all these components are fundamental to running a business, they do not encompass the financial evaluation and decision-making process integral to capital budgeting.