23. Which of the following statements concerning capital budgeting is FALSE? O A. A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return. O B. Capital budgeting is the process of planning asset acquisitions. ) C. Capital budgeting is based on uncertain predictions. D. Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.
23. Which of the following statements concerning capital budgeting is FALSE? O A. A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return. O B. Capital budgeting is the process of planning asset acquisitions. ) C. Capital budgeting is based on uncertain predictions. D. Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Capital Budgeting Exercise
**Question 23:** Which of the following statements concerning capital budgeting is FALSE?
**Options:**
- **A.** A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.
- **B.** Capital budgeting is the process of planning asset acquisitions.
- **C.** Capital budgeting is based on uncertain predictions.
- **D.** Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.
- **E.** Capital budgeting is a process of statistical certainty regarding plant assets.
**Analysis:**
- **Option A:** This statement is true. One of the fundamental goals of capital budgeting is to select investments that are expected to generate satisfactory returns.
- **Option B:** This statement is true. Capital budgeting entails the strategic planning of acquiring and investing in capital assets like machinery, buildings, or technology.
- **Option C:** This statement is true. Capital budgeting involves forecasting future revenues and costs, which inherently involves uncertainty and predictions about future market conditions.
- **Option D:** This statement is true. The capital budgeting process includes detailed analysis and forecasting to estimate potential revenues and costs, assess the merits of different projects, and make informed investment decisions.
- **Option E:** This statement is false. Capital budgeting is not a process of statistical certainty; rather, it involves making decisions based on estimates and forecasts, which are subject to variability and uncertainty.
**Conclusion:** The correct answer is **E**, as it incorrectly states that capital budgeting involves statistical certainty.
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