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Introduction:
Capital Budgeting Decision:
The most vital and crucial financial decision taken by the managers in relation to the investment in capital expenditures refers to capital budgeting decision. It is the commitment of resources in the business with the aim to recoup the benefits over a long time period in the future. The management should take correct decision at appropriate time to generate good
To state:
The reason why the capital budgeting decisions require careful analysis by the management.
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Answer to Problem 1DQ
Solution:
Capital budgeting decisions require careful analysis because they are generally the mostdifficult and riskydecisions that management faces.
Explanation of Solution
The capital budgeting decision requires careful analysis and diligent planning because of the following factors:
a. Capital budgeting deals with huge capital outlay with scarce resource.
b. It has long term effects by which the returns from capital expenditure accrues over the life period of the project.
c. It deals with the future period which is always uncertain to be predicted.
d. Decision taken in capital budgeting are irrecoverable in future at any cost.
The survival of the business and success of the project depends largely on capital budgeting decisions that forces managers to take appropriate decisions.
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Chapter 26 Solutions
Connect Access Card For Fundamental Accounting Principles
- The following data were selected from the records of Fluwars Company for the year ended December 31, current year: Balances at January 1, current year: Accounts receivable (various customers) $ 111,500 Allowance for doubtful accounts 11,200 The company sold merchandise for cash and on open account with credit terms 1/10, n/30, without a right of return. The following transactions occurred during the current year: Sold merchandise for cash, $252,000. Sold merchandise to Abbey Corp; invoice amount, $36,000. Sold merchandise to Brown Company; invoice amount, $47,600. Abbey paid the invoice in (b) within the discount period. Sold merchandise to Cavendish Inc.; invoice amount, $50,000. Collected $113,100 cash from customers for credit sales made during the year, all within the discount periods. Brown paid its account in full within the discount period. Sold merchandise to Decca Corporation; invoice amount, $42,400. Cavendish paid its account in full after the…arrow_forwardI want the correct answer with accountingarrow_forwardSolve with explanation and accounting questionarrow_forward
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