Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 10, Problem 1PS
Capital budgeting process True or false?
- a. The approval of a capital budget allows managers to go ahead with any project included in the budget.
- b. Capital budgets and project authorizations are mostly developed “bottom up.” Strategic planning is a “top-down” process.
- c. Project sponsors are likely to be overoptimistic.
Expert Solution & Answer
Summary Introduction
To discuss: Whether the given statements are true or false.
Explanation of Solution
a) The capital budget is not a complete sign-off for particular projects. Many of the firms need a correct request for individual project with a brief analysis.
Hence, option A is false.
b) The strategic planning needs to consider the alternatives. The project authorizations and capital budgets are generally developed “bottom up”. The strategic planning is a “top-down process”.
Hence, option B is true.
c) The sponsors of the project are mostly overoptimistic and the forecasts of the cash flow are often overstated.
Hence, option C is true.
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Chapter 10 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 10 - Capital budgeting process True or false? a. The...Ch. 10 - Prob. 2PSCh. 10 - Prob. 3PSCh. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Prob. 5PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 7PSCh. 10 - Prob. 9PSCh. 10 - Prob. 10PSCh. 10 - Break-even analysis Break-even calculations are...
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