a) Define capital budgeting. Why pay back period method is popular?

Capital Budgeting:

Capital budgeting is the process of making long-term investment decisions in projects or assets that involve significant cash outflows and inflows. These decisions typically involve allocating funds to projects that will yield returns over an extended period, often several years or more. The primary objective of capital budgeting is to maximize the value of the firm by investing in projects that generate positive net cash flows and provide a satisfactory rate of return.

Capital budgeting involves evaluating and analyzing various investment opportunities to determine their potential for generating returns and creating value for the organization. It encompasses assessing the feasibility, profitability, and risks associated with different investment alternatives, as well as determining the optimal allocation of resources among competing projects.

The capital budgeting process typically consists of several key steps:

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