Chapter 12

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Chapter 12

Discussion Questions

|12-1. |What are the important administrative considerations in the capital budgeting process? |
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| |Important administrative considerations relate to: the search for and discovery of investment opportunities, the |
| |collection of data, the evaluation of projects, and the reevaluation of prior decisions. |
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However, it incorporates the reinvestment rate |
| |assumption of the net present value method. That is that inflows are reinvested at the cost of capital. |

|12-7. |If a corporation has projects that will earn more than the cost of capital, should it ration capital? |
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| |From a purely economic viewpoint, a firm should not ration capital. The firm should be able to find additional funds |
| |and increase its overall profitability and wealth through accepting investments to the point where marginal return |
| |equals marginal cost. |
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