Capital budgeting is the process of allocating financial capital among various capital investments. A capital investment is an outlay that is expected to result in benefits in the future (e.g., new plants and equipment, real estate). Three Most Popular Capital Budgeting Techniques: Payback Period, NPV, and IRR Year Project A Project B Project C Initial Investment (Year 0) ($840,000) ($900,000) (1,680,000) Year 1 $280,000 $560,000 560,000 Year 2 $280,000 $240,000 560,000 Year 3 $280,000 $200,000 560,000 Year 4 $280,000 $200,000 560,000 Year 5 $280,000 $200,000 560,000 Average $280,000 $280,000 560,000 Assume: same risk for each project; year 1-5 cash flows at end of year