Capital budgeting is the proces that companies use for investing in capital projects – those projects with a life of a year and more. Capital budgeting includes the assessment of necessary investments in fixed assets and the assessment of future cash flows (cash receipts), as well as the evaluation of their financial efficiency. Estimated cash flows create a basis for calculation and easier decision making on investment projects. This process is used by businesses to determine the value of a potentional investment project. The process is important because it creates accountability and measurability of the investment project. Any company that seeks to invest its resources in a project without understanding the risks and returns involved is considered irresponsible by owners or shareholders. If a company has no way to measure the effectiveness of its investment decisions, the chances are high that company will have little chance of surviving in competitive market. Businesses (aside from non- profits) exist to earn profits. The capital budgeting process is a measurable way for a company to determine the longterm economic and financial profitability of any investment project. In the process of capital budgeting, it is important to mention the cost of capital, which shows the cost of financing the company. The cost of capital is the cost of operating a company above which the operation of the company is considered profitable. The decision on capital budgeting is both a financial and an investment decision. Making quality investment and financial decisions is the primary task of company menagement in order to maximize the value of the company by accepting investment projects that are profitable and rejecting investment projects that are not profitable. The success and profitability of the company in the future largely depends on the long-term decisions it makes today.