Chapter 10, Problem 1RQ

Why is capital budgeting such an important process? Why are capital-budgeting errors so costly?

Summary Introduction

To discuss: The reason why capital budgeting process is importance and the reason why these process errors are costly.

Explanation of Solution

Capital budgeting decision is considered as an important tool as it involves the investments which needs large cash outlays at the start of the project’s life and it penetrate the firm to specific course of action under a comparatively long time horizon.

Since, they are difficult and costly to reverse, as due to the large cost and they include fixed assets which are not been liquidated or discharged easily.