1. “Capital Investment Decision is probably the most important decision for an organization”.
2. 1. i. Explain the meaning of the above statement clearly stating the meaning and the importance of capital investment decisions. What are the other key finance decisions related to capital investment decisions?
3. 2. ii. Biosis Pty Ltd (BPL) has the opportunity to invest in two mutually exclusive investment projects. Project “A” would cost $250,000 and provide net after-tax cash benefits of $70,000 a year for five years. Project “B” would cost $150,000 and provide net after-tax cash benefits of $47,000 a year for five years.

BPL’s cost of capital is 12%. For each project, compute the net present value (NPV), internal rate of return (IRR) and pay-back period (PBP). Recommend which project should be accepted.

3. iii. Critically explain the limitations of using Accounting Rate of Return (ARR) and pay-back period (PBP) as project evaluation techniques and explain why IRR is useful to compare projects.