Capital budgeting is the process of identifying, evaluating, planning, and financing capital investment projects of an organization. It involves projects that require large sums of money and long time periods. The key steps are identifying potential projects, estimating costs and benefits, evaluating proposed projects, and developing a capital expenditure budget. Projects can be for replacement, improvement, or expansion. Various discounted cash flow methods and payback methods are used to evaluate projects based on factors like net investment, net returns, and cost of capital.