When evaluating capital projects, the following cost and revenues must be taken in consideration: All total cost and revenues associated with each project. Only large cost and revenues that affect the project. Only those cost and revenues that can be identified to the project. Only relevant cost and relevant revenues associated with the projects.

When evaluating capital projects, the following cost and revenues must be taken in consideration: All total cost and revenues associated with each project. Only large cost and revenues that affect the project. Only those cost and revenues that can be identified to the project. Only relevant cost and relevant revenues associated with the projects.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 17MCQ

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Capital expenditure projects may be classified in all the following types EXCEPT ____. a. obligations to meet legal requirements b. cost reduction opportunities c. capital rationing d. growth opportunities
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.
This refers to the funds which are necessary to make the project a going concern.a. Development costb. Working capitalc. First costd. Construction cost
Which of the following is a must-have requirement to be able to prepare construction project cash flow? Select all that apply. a) Project estimate b) Project schedule c) All contract terms d) Cost loaded schedule e) Financial contract terms
How are project classifications used in the capital budgeting process? Note: Give Conceptual Answer
Should capital budgeting decisions be made solely on the basis of a project’s NPV?Explain.
Questions and Topics for Discussion: 1. Define capital expenditures and provide examples of capital expenditures. 2. Cash flows for a particular project should be measured on an incremental basis. What does that mean? 3. How does the opportunity cost concept affect capital budgeting cash flow determination?
Determine the initial capital of both projects, and sssuming both projects are mutually exclusive, suggest a capital budgeting decision using Net Present Value (NPV) criteria. Show workings.
The capital budgeting is a complex process that includes several activities- Discuss the steps which the financial manger should follow for the capital budgeting project.
Explain the conditions under which a company’s WACC is appropriate to use as the cost of capital when evaluating the company’s projects.
What other sources provide resources for capital projects funds?
(1) What are the three types of risk that are relevant in capital budgeting? (2) How is each of these risk types measured, and how do they relate to one another? (3) How is each type of risk used in the capital budgeting process?