Capital Budgeting (More on Theories)

The capital budget is a(n)

• Plan to insure that there are sufficient funds available for the operating needs of the company.

• Exercise that sets the long-range goals of the company including the consideration of external influences.

• Plan that coordinates and communicates a company’s plan for the coming year to all departments and divisions.

• Plan that assesses the long-term needs of the company for plant and equipment purchases.

In planning and controlling capital expenditures, the most logical sequence is to begin with

• Analyzing capital addition proposals.

• Making capital and expenditure decisions.

• Analyzing and evaluating all promising alternatives.

• Identifying capital projects and other capital needs.

Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?

• Capital budgeting

• Working capital

• Master budgeting

• Project-cost budgeting

Capital budgeting is concerned with

• Decisions affecting only capital intensive industries.

• Analysis of short-range decisions.

• Analysis of long-range decisions.

• Scheduling office personnel in office buildings.

The stage of the capital budgeting process which distinguishes which types of capital expenditure projects are necessary to accomplish organization objectives is the

• identification stage.

• search stage.

• information-acquisition stage

• selection stage.

The stage of the capital budgeting process which considers the expected costs and the expected benefits of alternative capital investments is the

• identification stage.

• search stage.

• information-acquisition stage

• selection stage.

The stage of the capital budgeting process which explores alternative capital investments that will achieve organization objectives is the

• identification stage.

• search stage.

• information-acquisition stage.

• selection stage.

The stage of the capital budgeting process which chooses projects for implementation is the

• selection stage.

• search stage.

• identification stage.

• management-control stage.

The stage of the capital-budgeting process in which projects get underway and performance is monitored is the

• implementation and control stage.

• search stage.

• identification stage.

• management-control stage.

Effective planning and control is important for the effective administration of a capital expenditure program because:

• the long-term commitment increases financial risk

• the magnitude of expenditures is substantial and the economic penalties for unwise decisions are usually severe

• decisions made in this area provide the structure for operation of the firm

• all of the above