There are a number of methods by which the capital budgeting concept may be applied. All of the methods, however, must provide some basis for the consideration of two significant factors. These two factors are (a) the time value of money and (b) risk. Additionally, consideration must be given to the cost of capital, and financial-leverage.
The zero-based budget (ZBB) format is not an incremental type of budget. The ZBB name causes many people to think that the budgeting concept means a reduction of expenditures from current levels. What the name actually means, however, is that all budgeting units are required to "start at zero budget levels each year and justify all costs as if the programs involved were being initiated for the first time" (Austin & Cheek, 1994, p. 3).
Landry, S. P., Jalbert, T., & Chan, C. (2005, September). Analyzing functional performance of Hong Kong firms: Planning, budgeting, forecasting, and automation. Journal of American Academy of Business, Cambridge, 7(1), 228-232.
Program budgets are, as are objects of expenditure and performance budgets, incremental in character. A program budget is actually an extension of the performance budget format. Rather than budgeting functions (objectives and missions), as is done in the performance budget format, the program budget format places specific funding levels on specific programs that are to be carried out by an organization (Vadasz, 2005).
Another form of organizational budgeting is capital budgeting. The selection from among alternatives in the capital investment process is generally referred to as capital budgeting, which involves the making of investment decisions related to fixed assets and other long-lived assets. The "capital" in capital budgeting refers to the investment of financial resources in assets, while the "budgeting" refers to the revenue inflows and outflows related to the capital investment over a specified period of time. Budgeting, in this perspective, also ref