The subject of this paper is capital budgeting, i.e. testing the effectiveness of investing in a particular project. In the theoretical part of this paper, there are methods of capital budgeting listed and described, while in the second part of the paper, the cost effectiveness of the said methods is tested on a concrete example. To be more specific, six basic capital budgeting methods are mentioned: recovery periodnet present value, Internal Rate of Return, profitability index and annuity criterion. The concrete example refers to the application of the said methods to a specific investment. The example was testing the profitability of investment into furnishing an apartment in Zagreb and daily renting of that apartment, or buying an apartment at the Croatian coast and renting it to tourists. At first, the cost effectiveness of each project mentioned was tested using the budgeting methods, and then the comparative analysis of the profitability was used. By using the analysis, a conclusion was reached that it would be more feasible to invest the capital into refurnishing an apartment in Zagreb and using it for daily rent. Namely, certain methods have shown ineffectiveness of buying an apartment at the Croatian coast, and the comparative analysis has clearly shown better profitability of investing into an apartment in Zagreb. In order to reach a conclusion, many reference works were used where using capital budgeting methods is explained and concrete examples of their use are listed. The hypothesis was confirmed: the analysis of financial indicators is needed in order to determine if the investment in a certain project would be profitable. Also, market trends were examined, which helped with decision making, and which also confirmed the second hypothesis from the introduction of the paper.