1. The process of selecting among potential major corporate investments is calle

Question

1.The process of selecting among potential major corporate investments is called capital budgeting. True or false

2.The goal of the capital budgeting decisions is to select capital projects that will decrease the value of the firm.True or false

5.The payback period is useful because it takes into account all expected future cash flows.True or false

10.The payback period rule accepts all investment projects in which the payback period for the cash flows is:True or false

12.Kingston, Inc. management is considering purchasing a new machine at a cost of $4,250,000. They expect this equipment to produce cash flows of $815,000, $850,000, $1,000,000, $2,000,000, and $2,500,000 over the next five years. If the cost of capital is 15 percent, what is the NPV of this investment?

13.Kingston, Inc. management is considering purchasing a new machine at a cost of $4,250,000. They expect this equipment to produce cash flows of $815,000, $850,000, $1,000,000, $2,000,000, and $2,500,000 over the next five years. What is the IRR of this investment (in percent and do not enter a percent sign)?

14.Bulldawg Enterprises would like to invest $1,000,000 in a new football manufacturing facility. The new facility is expected to generate an extra $300,000 per year in annual cash flow for the next five years. What is the NPV on this investment if the required rate of return is 10 percent?

15.Morningside Bakeries has recently purchased equipment at a cost of $1,050,000. The firm expectes to generate cash flows of $500,000 from this equipment over the next four years. What is the payback period for this project?

Explanation / Answer

1. Capital Budgeting is the process of identifying and analyzing capital expenditures, and deciding which expenditure should be carried out. It can also be referred as investment appraisal. Thus, it is a control and decision making tool.

It helps in identifying capital project that will prove to be best investment in terms of returns delivered over a specified period of time. Investments made in fixed assets determine the financial conditions of the organization for several years, so capital budgeting has significant importance in the success of the organization.

The firm’s investment decisions would generally include expansion, acquisition, modernization, and replacement of long-term assets. In order to select among the alternatives firms use capital budgeting techniques. The capital budgeting techniques are Net Present Value, Internal Rate of Return, Profitability Index, and Payback Period.

Therefore, the given statement is “True”.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.