COST ACCOUNTING
CAPITAL BUDGETING
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]


net present value profile.


operational ambiguity decision.


mutually exclusive investment decision.


issues of scale problem.

Detailed explanation1: Answer and Explanation: The answer is C. When two investments are mutually exclusive, then at most one of the investments could be accepted. In other words, accepting one investment automatically implies that the other investment is given up.
Detailed explanation2: Mutually exclusive investment decisions. Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.
Detailed explanation3: Example of Mutually Exclusive For example, assume a company has a budget of $50, 000 for expansion projects. If available Projects A and B each cost $40, 000 and Project C costs only $10, 000, then Projects A and B are mutually exclusive. If the company pursues A, it cannot also afford to pursue B and vice versa.
Detailed explanation4: Investment decision It relates to as how the funds of a firm are to be invested into different assets, so that the firm is able to earn highest possible return for the investors. Investment decision can be longterm, also known as capital budgeting where the funds are commited into longterm basis.
Detailed explanation5: The decision rule for NPV is to accept the project if the NPV is positive and reject the project if the NPV is NPV is negative. The decision rule for IRR is to accept the project if the IRR equals or is greater than the required rate of return and reject the project if the IRR is less than the required rate of return.