Participation #6:   Why is it desirable to construct capital budgeting rules so that higher-risk projects become less acceptable than lower-risk projects?

Q: What is the typical discount rate used with the Net Present Value (NPV) when project risk is the…

A: a) The rate of return the shareholders expected to get, or the rate at which the company borrows,…

Q: Which of the following is not a benefit associated with the NPV technique in capital budgeting?…

A: The best method for evaluation of an investment proposal is net present value method or discounted…

Q: The general rule for using the weighted-average cost of capital (WACC) in capital budgeting…

A: WACC is the Weighted Average Cost of Capital of a company. A company's capital consists of debt and…

Q: Please explain why the net present value (NPV) method is preferred over the payback method when…

A: NPV method is preferred over payback method because of following reasons 1. NPV method shows project…

Q: Why is the capital budgeting decision important?

A: Capital Budgeting relates to decision of entity relating to either purchase of capital assets or…

Q: How does the payback period approach capital budgeting? Examples of 1 advantage and 1 disadvantage?

A: Pay back period approch in capital budgeting is use to analysis two or more projects. The project…

Q: In a capital budgeting study, explain why sunk costs should not be included, but opportunity costs…

A:

Q: Operating cash flows rather than accounting income are listed in Table 12.1. Why do we focus on cash…

A: Answer: The main reason why we are focusing on cash flows is only because cash can be invested or…

Q: Critically think and outline the difficulties that might come up in actual applications of the…

A: The following are the difficulties of capital budgeting: Forecasting the cash flow The time horizon…

Q: In a capital budgeting analysis, why are interest charges not deducted when a project’s cash flows…

A: Capital Budgeting:  The process to evaluate an alternative based on the estimated future benefits…

Q: Outline the limitations of the capital asset pricing model as a method for obtaining discount rates…

A: Capital Asset Pricing Model (CAPM) measures the expected return on an investment at particular…

Q: “Only quantitative outcomes are relevant in capital budgeting analyses.” Do you agree? Explain.

A: Capital budgeting- It is also known as investment appraisal. It is the process which every business…

Q: Under what circumstances the cross over rate will be an important point in capital budgeting. Can it…

A: Capital Budgeting is a process in which the company decided on the project investments which would…

Q: What does effective capital budgeting require?

A: Capital budgeting is the process of evaluating large-scale investments or expenditures. The…

Q: Do you think capital budgeting is important? Justify

A: Capital budgeting is a process of investing into capital expenditure. Capital expenditure is an…

Q: Compare capital budgeting decision criteria, Net Present Value (NPV) and Internal Rate of Return…

A: Part (1): Answer: Net present value approach predicts how much a future project would add to the…

Q: Of the capital budgeting techniques discussed, which works equally well with normal and non-normal…

A: The correct answer is “Net present value”.

Q: Why might DCF techniques not lead to proper capital budgeting decisions?

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting…

A: Capital budgeting is indeed the process by which a company evaluates potential large projects or…

Q: WHAT ARE THE PROBLEMS WITH IRR APPROACH TO CAPITAL BUDGETING?

A: IRR internal rate of return is very common method of capital budgeting decisions making.

Q: What are the advantages of the PI method of capital budgeting?

A: The ratio that evaluates the profitability of the investment is term as the profitability index…

Q: What is the difference between scenario analysis and sensitivity analysis? How might you use each…

A: Capital budgeting is the process of selection of best project which will increase the value of the…

Q: f NPV is conceptually the best procedure for capital budgeting, why do you think multiple measures…

A: Capital budgeting refers to the investment of funds in capital expenditure. Capital expenditure is a…

Q: Why is the NPV the primary capital budgeting decision criterion?

A: NPV( net present value) is a method to determine the current value of all the cash flows which are…

Q: Distinguish among beta (or market) risk, within-firm (or corporate) risk, and stand-alone risk for a…

A: Answer: Stand-alone risk is nothing but a risk of the business disregarding the fact that it is not…

Q: In capital budgeting decisions, are there reasons a company might choose to take a project that was…

A: Net present value (NPV) is value of all future cash flows discounted to the present value by either…

Q: What is the major short coming of using the payback period as the only criterion in making capital…

A: ANSWER    the major short coming of using the payback period as the only criterion in making capital…

Q: What two pieces of information does the payback method providethat are absent from the other capital…

A: The question is based on the concept of calculation of payback period as a capital budgeting…

Q: Which is one of the most important parts of the capital budgeting process? Explain with an example?

A: The Decision-making phase is the most vital part of the capital budgeting process and it is…

Q: Sherley Garci is fascinated by Capital Budgeting. However, she is not clear about the following…

A: DEFINATION OF MUTUALLY EXCLUSIVE PROJECT METHOD OF RANKING FOR MUTUALLY EXCLUSIVE PROJECTS

Q: Use an example to explain to show why capital budgeting relies on cash flows rather than net income?

A:

Q: What two variables affecting capital budgeting would you consider the most when making investment…

A: Capital budgeting decisions involve deciding which long-term investment should be undertaken by the…

Q: For capital budgeting projects like the one depicted in the prior problem, which of the following…

A: The lower the required rate of return, the lower the calculated NPV. When we calculate NPV, we…

Q: 1. Why is the WACC used in capital budgeting?

A: Solution- Weighted Average Cost of Capital (WACC)-         The weighted average cost of capital…

Q: Opportunity Cost In the context of capital budgeting, what is an 9.1 opportunity cost?

A: Capital budgeting is the process a company takes to evaluate potential major projects or…

Q: What factors should you keep in our mind as a financial manager when selecting methods of capital…

A: Capital budgeting is the method through which financial managers are able to make decisions related…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.