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Capital budgeting refers to the process by which a business evaluates and selects long-term, large-scale investments. It involves analyzing potential investment opportunities using accounting principles and financial metrics, such as net present value (NPV) and internal rate of return (IRR), in order to determine their expected profitability and risk. The goal is to allocate resources effectively by choosing projects that will generate the highest returns for the company while also considering factors such as cash flow, capital structure, and strategic fit. Capital budgeting decisions can have a significant impact on a business's long-term success and are typically made at the highest levels of management.