COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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determine how the consequences of making a particular decision affects the firmʹs revenues and costs
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list the projects and investments that a company plans to undertake in the future
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forecast the consequences of a list of future projects for the firm
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determine the effect of the decision to accept or reject a project on the firmʹs cash flows
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Detailed explanation-1: -The answer is: d. to determine the effect of the decision to accept or reject a project on the firm’s cash flows. Capital budgeting is a process used by firms to determine whether or not to accept or reject a project. This decision is made based on the project’s anticipated future cash flows.
Detailed explanation-2: -What Is the Primary Purpose of Capital Budgeting? Capital budgeting’s main goal is to identify projects that produce cash flows that exceed the cost of the project for a firm.
Detailed explanation-3: -A manager must gather information to forecast cash flows for each project in order to determine its expected profitability. This is because the decision to accept or reject a capital investment is based on such an investment’s future expected cash flows.
Detailed explanation-4: -The goal of the capital budgeting decisions is to select capital projects that will decrease the value of the firm. When two projects have cash flows that are tied to each other, the projects may be classified as independent. When two projects are independent, accepting one project implicitly eliminates the other.
Detailed explanation-5: -FACTORS AFFECTING CAPITAL BUDGETING: Availability of Funds. Working Capital. Structure of Capital. Capital Return. Management decisions.