Final answer:
Capital budgeting involves the evaluation of the size, timing, and risk of future cash flows when making investment decisions.
Step-by-step explanation:
The evaluation of capital budgeting includes the size, timing, and risk of future cash flows. This means that when making investment decisions, businesses analyze the potential size of the cash flows they expect to receive, the timing of when they will receive those cash flows, and the level of risk associated with those cash flows.
For example, let's say a company is considering investing in a new manufacturing plant. They would assess the potential size of the cash flows the plant is expected to generate, such as the revenue from increased production. They would also consider the timing of those cash flows, such as whether the plant will generate profits immediately or take several years to become profitable. Lastly, they would evaluate the risk associated with those cash flows, considering factors like market demand, competition, and economic conditions.