Capital budgeting is a method of estimating the nancial viability of a capital investment over the life of the investment. A small company is considering whether to purchase a new delivery or to hire a delivery service.

Required:

1. Critically discuss the purpose of capital budgeting. (70 words)
2. Elaborate on the four steps to follow when making a decision about a major purchase or project. (60 words)
3. Discuss the two primary types of benefits to consider when evaluating a major purchase or project. (20 words)
4. In case an SME decided to purchase a new delivery truck, identify two primary benefits associated with the purchase. Elaborate on the qualitative non-tangible benefits (30 words)
5. How would contracting with a delivery service impact fixed and variable costs? Assume that you purchased a new delivery truck. Is the cost of the truck or depreciation expense relevant for setting delivery charges and prices? (40 words)
6. Discuss some potential hidden costs of major purchases or projects. (80 words)