How can a company mitigate the risks associated with capital budgeting?

Capital budgeting contributes to a company's growth and expansion by helping it make informed decisions about long-term investments. It allows a company to evaluate potential major projects or investments to see their potential impact on the company's profitability. By calculating metrics like the Internal Rate of Return (IRR), as in the example provided, a company can compare the profitability of potential projects and choose the ones that will provide the highest return on investment. This can lead to increased profitability and, therefore, growth and expansion.

Some of the best practices in capital budgeting include: 1. Thoroughly evaluating the potential profitability of new investments or projects. This can be done using methods such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. 2. Considering the risk associated with the project. This includes assessing the likelihood of the project failing or not providing the expected return. 3. Taking into account the strategic fit of the project with the company's overall goals and objectives. 4. Involving stakeholders in the decision-making process. This can help ensure that the project has the support it needs to succeed. 5. Regularly reviewing and updating the capital budget as necessary.