Chapter 26, Problem 1TI

Match the following business activities to the steps in capital budgeting process. Steps in the capital budgeting process:

1. a. Develop strategies
2. b. Plan
3. c. Direct
4. d. Control

Business activities:

A manager evaluates progress one year into the project.

To determine

Match the given business activity with capital budgeting process.

Explanation of Solution

Capital budgeting process: The capital budgeting process is the process by which management plans, evaluates, and controls investments in fixed assets. In the capital budgeting process, some benefits are qualitative in nature, and it improves the qualitative considerations in the investment proposals.

Steps in the capital budgeting process are,

1. 1. To develop the long-term objectives of investments (strategies).
2. 2. Planning process: this involves the following
3. Identify the potential capital investments.
4. Analyze the potential capital investments.
5. Apply the capital rationing to choose appropriate investment based on available funds.
6. 3. To Direct- Acquire and use the approved and selected capital investments.
7. 4. To Control- Perform the post-audits for regular intervals.

Match the given business activity with capital budgeting process as follows:

Business activity	Capital budgeting process
A manager evaluates progress on year into the project	d. Control

Table (1)

• Post audit is a control process that helps to evaluate the cash flows of capital investment. It aids the management to compare the actual performance with the original projection in capital investment.
• Post-audit helps the managers to submit the reasonable and accurate data for their estimates, and it provides a decision about whether the project should be continued or not.