What is a capital budget?

A capital budget specifically focuses on long-term investment expenditures, which typically involve asset purchases or improvements that will benefit the organization over an extended period, often exceeding one year. This type of budgeting allows businesses and organizations to plan for major capital expenditures, such as purchasing new machinery, constructing new buildings, or upgrading existing facilities.

The process of creating a capital budget includes assessing the need for new investments and the expected return on these investments over time. This is crucial for maintaining and improving an organization’s operational capacity and ensuring its long-term sustainability.

In contrast, other budget types mentioned in the options relate to short-term operational costs or specific needs that do not encompass the broader financial strategy associated with capital investments. Therefore, the correct answer accurately captures the essence of what a capital budget entails in the context of financial planning and management.