To explain: The important administrative consideration in capital budgeting.
Introduction:
Capital budgeting:
A process that helps a business evaluate the current worth of its potential projects and investment is termed as capital budgeting.
Answer to Problem 1DQ
The important administrative considerations in capital budgeting include:
Finding investment opportunities
Data collection for the evaluation of the investment
Evaluation of the investment
Re-evaluation of the previous decision of the investment
Explanation of Solution
Finding investment opportunities:
For capital budgeting, an investor must find opportunities for investing in a fund. In this, an investor must have at least two alternatives.
Data collection for the evaluation of the investment:
In this, the investor finds data related to the investment, such as initial investment,
Evaluation of the investment:
In this, the investor evaluates the investment to check whether it is profitable or not.
Re-evaluation of the previous decision of investment:
In this, before finalizing the decision, the investor re-evaluates the decision made earlier to check whether it is right or not.
Want to see more full solutions like this?
Chapter 12 Solutions
Foundations of Financial Management
- 1-What are the relevant cash inflows and outflows for capital budgeting decisions? 2- What strategic considerations arise in the capital budgeting process?arrow_forward(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?arrow_forward45. What does the term capital budgeting means in the context of making capital expenditure decisions? A. The process of choosing assets B. The process of allocating the funds among assets C. The process of acquiring the funds to finance the business D. None of the choicesarrow_forward
- 1- What are the payback and discounted payback methods? What are their main weaknesses? 2- What are the five stages of capital budgeting? 3- What are strengths and weaknesses of the accrual accounting rate-of-return (AARR) method for evaluating long-term projects? 4- What are the relevant cash inflows and outflows for capital budgeting decisions? 5- What strategic considerations arise in the capital budgeting process?arrow_forwardWhich is one of the most important parts of the capital budgeting process? Explain with an example?arrow_forward7 Identify behavioral issues associated with the capital budgeting processarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning