Capital Budgeting Techniques and Practice
INSTRUCTIONS: Please give the answers to the following five questions that are noted below.
1. Why is capital budgeting such an important process? Why are capital-budgeting errors so costly?
2. Write the equation for the Payback period and explain the disadvantages of using the payback period as a capital-budgeting technique? What are its advantages? Why is it so frequently used?
3. Define the term Mutually exclusive projects:
4. Why might the existence of mutually exclusive projects cause problems in the implementation of the discounted cash-flow capital-budgeting criteria?
5. Explain how the capital-budgeting decision process changes when a dollar limit is placed on the capital budget.