Statement 1: Capital budgeting refers to a group of methods used by a company to analyze possible capital projects to invest in. Statement 2: "capital budgeting" is called as such because capital-whether debt, equity, or retained earnings-is a limited resource. Select the correct response: Both statements are correct. Only statement 1 is correct. only statement 2 is correct Neither statement is correct.

Statement 1: Capital budgeting refers to a group of methods used by a company to analyze possible capital projects to invest in. Statement 2: "capital budgeting" is called as such because capital-whether debt, equity, or retained earnings-is a limited resource. Select the correct response: Both statements are correct. Only statement 1 is correct. only statement 2 is correct Neither statement is correct.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In many decisions, the focus is on net income. Accounting net income is based on accrual accounting, which ignores the timing of cash flows. In capital budgeting, however, the timing of cash flows is critical. Why do you think that is? Respond to why agree or disagree with their reason for the criticality of cash flow timing in capital budget decisions.
8. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. The NPV shows how much value the company is creating for its shareholders. For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR. Managers have been slow to adopt the IRR, because percentage returns are a harder concept for them to grasp. is the single best method to use when making capital budgeting decisions.
Select all that is true about the role of financial managers and the types of financial decisions they make. a. Capital Budgeting function involves planning and determining the firm’s short term investments. b. Determining the appropriate level of inventory is a working capital management function. c. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake. d. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets. e. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm. f. Size and timing of cash flows is unimportant in a capital budgeting decision.
Capital investment (sometimes also referred to as capital budgeting) is a company’s contribution of funds toward the acquisition of long-lived (long-term or capital) assets for further growth. True / False
SECTION B Answer all the questions below:. B1) Do you think capital budgeting is important? Justify? B2) List all the techniques of Capital Budgeting? You think are relevant today? B3) Do you think that these techniques are really helpful to financial managers? B4) Do you think that these techniques can be used in situations like COVID-19? B5) According to you which technique is better and why?
Which of the following statement is correct Select one: A. None of the statements are correct B. Capital structure is a method of analyzing and comparing substantial future investments and expenditures to determine which ones are most worthwhile C. Capital expenditure decisions do not involve commitment of large sums of money D.Working Capital may comprise of Equity Share Capital, Preference Share Capital and Debentures
5. Taking into consideration all the information given, determine the Net Present Value of the project and advice the company on whether to invest in the new line of product. 6. Why should the cost of capital used in capital budgeting be calculated as a weighted average of the capital component rather than the cost of the specific financing used to fund a particular project?
CHOICES A. Only Statement I is correctB. Only Statement II is falseC. Statements II and III are falseD. Only Statement III is falseE. All statements are correct
Which of the following statements are correct? Preferred equities are separate form common equities Opportunity cost should not be included in the capital budgeting decision Retained earnings are important in calculating the WACC Weights for equity in the WACC calculation are always on book values Cash from net working capital for each year is defined as NWCn- NWCn-1