Chapter 12, Problem 1DQ

Summary Introduction

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, cash inflows and outflows, return rate, maturity time, etc.

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.