35 Capital Budgeting

Question 1

Capital budgeting is the process that companies use for making … … investment decisions

Answer 1

Long term

Question 2

Sound capital budgeting decisions maximize … …

Answer 2

shareholder wealth

Question 3

Valuation principle used in capital budgeting are also applied in … … and … …

Answer 3

security analysis and portfolio managemnet

Question 4

What is the first step in capital budgeting process?

Answer 4

1. Generating ideas

Question 5

What is second step after generating ideas?

Answer 5

2. Analyzing individual proposals

Question 6

What is the last step after planning the budget?

Answer 6

4. Monitoring

Question 7

… cost is the cost that cannot be recovered once they have been incurred.

Answer 7

Sunk

Question 8

Why is sunk cost ignored in the capital budgeting process?

Answer 8

because it is based only on current and future cash flows.

Question 9

… cost is the value of the next best alternative that is foregone in making the decision to pursue a particular project

Answer 9

Opportunity

Question 10

Should opportunity cost be included in project costs?

Answer 10

Yes