Capital Budgeting

18943 Words Mar 10th, 2013 76 Pages
MODULE 9

CAPITAL BUDGETING

THEORIES:
Basic Concepts
Decision Making Process
2. The first step in the decision-making process is to A. determine and evaluate possible courses of action. B. identify the problem and assign responsibility. C. make a decision. D. review results of the decision.

Strategic planning
39. Strategic planning is the process of deciding on an organization’ A. minor programs and the approximate resources to be devoted to them B. major programs and the approximate resources to be devoted to them C. minor programs prior to consideration of resources that might be needed D. major programs prior to consideration of resources that might be needed

Capital budgeting defined
1.
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B. an investment in working capital is returned in full at the end of a project’s life, while an investment in depreciable assets has no residual value. C. an investment in working capital is not tax-deductible when made, nor taxable when returned, while an investment in depreciable assets does allow tax deductions. D. because an investment in working capital is usually returned in full at the end of the project’s life, it is ignored in computing the amount of the investment required for the project.

30. The proper treatment of an investment in receivables and inventory is to A. ignore it B. add it to the required investment in fixed assets C. add it to the required investment in fixed assets and subtract it from the annual cash flows D. add it to the investment in fixed assets and add the present value of the recovery to the present value of the annual cash flows

31. In connection with a capital budgeting project, an investment in working capital is normally recovered A. at the end of the project’s life B. in the first year of the project’s life C. evenly through the project’s life D. when the company goes out of businessA

32. XYZ Co. is adopting just-in-time principles. When evaluating an investment project that would reduce inventory, how should XYZ treat the reduction? A. Ignore it. B. Decrease the cost of

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