Capital budgeting is the process of planning and managing a firm's long-term investments. The financial manager must forecast the cash inflows and outflows generated by an asset. This information is used to determine the asset's value. Then, the manger compares the asset's value with its cost to the firm. Any analysis of cash flows must consider three things: (1) the size of the cash flows, (2) the timing of the cash flows, and (3) the riskiness of the cash flows. These topics are thoroughly discussed in later chapters.