The five key elements of a capital budgeting and strategic planning framework for conducting investment appraisals include:

1. Identification of Investment Opportunities:

   • The first step in the capital budgeting process is to identify and evaluate investment opportunities that align with the company’s strategic goals.
   • This involves assessing business expansion, asset replacement, new projects, or diversification strategies.

2. Cash Flow Estimation:

   • Accurately estimating future cash inflows and outflows associated with an investment project.
   • It is important to consider initial investment costs, operating revenues and expenses, maintenance costs, and salvage values.

3. Evaluation of Investment Viability:

   • The application of investment appraisal techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Accounting Rate of Return (ARR).
   • NPV and IRR help in determining whether an investment will add value to the company.

4. Risk Assessment and Sensitivity Analysis:

   • The identification and assessment of key risks associated with the investment.
   • Sensitivity analysis is conducted to determine the impact of changes in critical variables such as interest rates, inflation, exchange rates, and project timelines.

5. Decision-Making and Post-Implementation Review:

   • The final decision on whether to proceed with the investment is made based on the financial viability and strategic fit of the project.
   • After implementation, a post-investment audit is conducted to compare actual performance against projections and identify lessons for future investment decisions.