Chapter 10 Flashcards
1
Q
What is capital budgeting?
A
Process of identifying, evaluation and selecting long-term investments.
2
Q
What is the firm’s goal of capital budgeting?
A
Maximizing shareholder wealth.
Competitive advantage
3
Q
What is an independent project?
A
Cash flows are unrelated - Doesn’t matter which project you choose, they won’t affect each other’s profitability.
4
Q
What is a mutually exclusive project?
A
Compete for resources - You can only choose one project, as they both require the same resources (money, time, etc.)
5
Q
What is the accept-reject approach?
A
Evaluates investment proposals to see if they meet the company’s minimum requirements.
6
Q
What is the ranking approach?
A
Compares acceptable projects based on a chosen metric (e.g., rate of return).
7
Q
A
