Define capital budgeting

Company ANZ 2021 has three projects under consideration. The cash flows for each project are shown in the following table 1. The company has a 15% cost of capital. 

1. Define capital budgeting, explain why it is important, and state how projects proposal are generally evaluated (not more than 4 pages)   (20 marks)

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2. Calculate each project’s payback period.   (10 marks)

3. Calculate each project’s discounted payback period.   (15 marks)

4. Calculate each project net present value (NPV).   (15 marks)

5. Calculate each project profitability index (PI).   (10 marks)

6. Calculate each project internal rate of return (IRR).   (10 marks)

7. Evaluate the acceptability of the three projects (based on all the calculations above), and indicate which project you would recommend. Explain why you propose the selected project(s) (not more than 2 pages)         (10 marks)

8.Briefly explain the concept of time value of money in capital budgeting technique (not more than 2 pages)   (10 marks)

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