What is the next step in the capital budgeting process after identifying potential capital investments?

In the capital budgeting process, after identifying potential capital investments, the logical next step is to estimate the future cash inflows of those investments. This step is essential because it allows decision-makers to project the expected benefits that the investments will bring over time. By understanding the potential cash inflows, businesses can evaluate whether the expected returns justify the investment costs and align with their financial goals.

Estimating future cash inflows involves analyzing various factors such as market demand, pricing strategies, operational efficiencies, and potential growth opportunities. This analysis is crucial for making informed decisions that maximize returns and minimize risks associated with capital expenditures. Once these estimates are made, they can be used for further analysis, such as calculating net present value, internal rate of return, or payback period, which are important for evaluating the overall merit of the investment options.