9. Capital budgeting and the post-audit process Aa Aa In January 2014, Commonwea
ID: 2795904 • Letter: 9
Question
9. Capital budgeting and the post-audit process Aa Aa In January 2014, Commonwealth Biofuels LLC opened a production facility that is capable of producing 2 million gallons per year of ethanol from cellulosic material. The company wants to expand and open three more ethanol production facilities within the next two years. The venture capital firm that financed the company's first project has asked the company's management team to perform a post-audit on the initial project. The venture capital firm wil use the information from the post-audit to help evaluate the company's plans for expansion. Which of the following would be part of the post-audit? Check all that apply. In instances where the company's estimated costs were different from the actual costs, the management team will need to explain why these differences occurred. The management team will need to compare the projected selling price of ethanol to the actual selling price of ethanol The management team will need to determine if it wants to use straight-line or accelerated depreciation to depreciate the property, plant, and equipment used in the initial project When a firm is forced to employ capital rationing, it generally means that the firm has projects than it can finance positive NPV lessExplanation / Answer
The first and the second box should be the options considered choosing.
Depreciation is not considered in the post audit because it aims for the evaluating variances betwen the actual and the estimated data. Secondly, it is held at the initial stage of the project.
When a firm is forced to employ capital rationing, it generally means that the firm has more positive NPV projects than it can finance.
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