G Aplia: Student Question x quiz action-takeQuiz&quiz; probGuid-QNAPCOA801010000

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G Aplia: Student Question x quiz action-takeQuiz&quiz; probGuid-QNAPCOA8010100000041 cda300400008ct-robert2-00398ck-m 152910 Attempts rvdet/quiz? Do No Harm Aa Aa 1. The basics of capital budgeting One of the most important financial management activities that a firm undertakes is its evaluation and allocetion of investment funds to support its future survival and growth. These activities may be motivated by the desire to expand the frm's revenues, reduce its costs, or satisfy its mandatory or voluntary legal, health, and safety requirements. They may have, more or less, multiyear effects on the organization and may or may not be considered as capital budgeting activities capiltal budgeting is the process of O Planning and managing the firm's normal operating expenditures O Planning and controlling investments in assets that are expected to produce cash flows for more than one year The capital budgeting process in a company involves evaluation of cash flows, risk analysis, correlation with the portfolio of projects in the company etc. To make this process qualify as a capital budgeting project or not and generally analyze them in different vertical categories more streamlined, firms identify whether the projects which of the foilowing are examples of a capital budgeting project? Check all that apply D Natural Gas Producers Corp.'s acquisition of a new parcel of real estate Atianta Aeronautics co.'s replacement of an existing piece of equpment Fort Worth Cattle Co.'s finanding of its monthiy average amount of accounts receivable For which of the following reasons are capital budgeting decisions important to a business organization? Check all that apply D Capital investments have relatively short life spans, so mistakes are worked through rather quickly Capital investments tend to require sizable cash outlays. ? capital investments tend to reflect the firm's future activ ties, markets, and productive technologies. Save& Continue

Explanation / Answer

QUESTION 1

Capital budgeting (by definition) is the process of planning and controlling investments in an asset that are expected to produce cashflows for more than one year period. It involves assessment of potential expenses or investments that are large in nature.

QUESTION 2

Statement 1 and 2 are correct

Capital budgeting generally deals with long term decisions that impact the company's profitabiility as well as its business strategy over a longer period of time. Both Statement 1 and 2, denote long term investment decision making which would involve significant cash outflow and will have a longer term impact on future cashflows, but statement 3 is showing decision making in relation to short term decision making - related to accounts receivables.

QUESTION 3

Statement 2 and 3 are correct.

Eliminating the incorrect one, statement 1 is incorrect clearly as capital budgeting deal swith long termporjects.

Statement 2 is correct as capital budgeting generally involves a big cash investment or outlay in initial years.

Statement 3 is correct as capital budgeting decisions give direction for firm's future strategies. Say for example, if Apple was to invest in a healthcare production line set up, we may know that Apple plans to enter healthcare sector.

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