The basic principles of capital budgeting are:

1. Investment Evaluation: Capital budgeting involves evaluating potential investment opportunities and selecting the ones that will provide the highest returns.

2. Cash Flow Analysis: The focus is on cash flows, not accounting profits. The analysis should consider all cash inflows and outflows associated with the investment.

3. Time Value of Money: The time value of money principle recognizes that a dollar received today is worth more than a dollar received in the future. Therefore, future cash flows must be discounted to their present value.

4. Risk Analysis: Risk analysis is an essential component of capital budgeting. The expected returns and risks associated with each investment opportunity should be analyzed and compared.

5. Capital Rationing: Capital rationing is the process of allocating capital to the most profitable projects when there are limited funds available.

6. Incremental Cash Flows: Incremental cash flows are the cash flows that result from a particular investment, and they should be analyzed separately from the cash flows of the entire firm.

7. Opportunity Cost: The opportunity cost of capital is the return that could be earned on the next best investment opportunity with similar risks.

8. Payback Period: The payback period is the amount of time it takes for the initial investment to be recovered from the cash flows generated by the investment.

9. Net Present Value: Net present value is the difference between the present value of cash inflows and the present value of cash outflows. If the NPV is positive, the investment is considered profitable.