Chapter 8, Problem 8.1Q

To determine

 

Concept introduction:

Capital budgeting is a technique to evaluate investment opportunities and to make investment decisions. Under the capital budgeting, there are several techniques like NPV analysis, IRR analysis which are used to evaluate the projects.  

To indicate: The difference between the capital budgeting screening decision and the capital budgeting preference decision.

Explanation of Solution

  

Capital budgeting evaluates investment projects by identifying future cash flows from the project. The capital budgeting screening decision is made to check the value time value of money of the project and its financial viability.

Under the capital budgeting, there are several techniques like NPV analysis, IRR analysis which are used to evaluate the projects. The capital budgeting preference decision is the next step to screening. In this step, all the screened projects are compared, and preference is given to the most valuable projects.