Chapter 14.C, Problem 1E

To determine

Capital Budgeting:

Capital Budgeting is the process of evaluating and selecting long-term investments that are consistent with the goal of owner’s wealth maximisation. Capital budgeting decisions are of paramount importance in financial decision making. Capital budgeting decisions are evaluated by various methods like Net present value method, Average rate of return method, Pay-back period method, Internal rate of return method, Net terminal value method, Profitability index method.

To Calculate:

Net Present value is the difference between the amount invested in a project and present value of its future cash inflows.