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Question Two a) What is meant by capital budgeting? Explain any three capital budgeting techniques 4 marks b) A company is evaluating two projects. Project
Question Two a) What is meant by capital budgeting? Explain any three capital budgeting techniques 4 marks b) A company is evaluating two projects. Project X requires K200million cash outlay, and Project Y also requires K200 million. The company can only undertake one project as it applies capital rationing. Each project will last 25 years and the cash flows for each year are as follows. Years X Y 1 K4,000,000 K15, 000 000 K25,000,000 2-25 K18,000,000 The company's cost of capital is currently 10% i. Evaluate the two projects using two different methods and advise the company about the viability of the two projects. 6 marks ii. Explain the meaning of capital rationing and external and internal factors that contribute to capital rationing 3 marks c) Define a financial system and briefly explain how it operates and its role in national economic development. In your opinion, what needs to be done to enhance the efficiency and effectiveness of our financial system? 4 marks
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