Which of the following is not a capital budgeting decision?Expansion program.Merger.Inventory level.Replacement of an asset. (2024)

FAQs

Which of the following is not a capital budgeting decision?Expansion program.Merger.Inventory level.Replacement of an asset.? ›

The correct option is ii. inventory level.

Answer and Explanation:

Capital budgeting is not used to decide what inventory to buy next year because capital budgeting involves large expenses of investments just like the buying a sales office facility, purchasing equipment, expanding a management information system.

The process of capital budgeting involves the steps like Identifying the potential projects, evaluating them, selecting and implementing the projects, and finally reviewing the performance for future considerations.

Costs for routine maintenance work necessary to keep a facility or asset in useful condition are not typically included in the capital budget.

Accrual principle is not followed in capital budgeting.

A capital budgeting decision is typically a go or no-go decision on a product, service, facility, or activity of the firm. That is, we either accept the business proposal or we reject it. 2. A capital budgeting decision will require sound estimates of the timing and amount of cash flow for the proposal.

The six capital budgeting decisions include decisions related to investment in new projects, replacement of existing assets, expansion of existing projects, reduction of costs, modification of existing projects, and abandonment of projects.

The process of capital budgeting includes 6 essential steps and they are: identifying investment opportunities, gathering investment proposals, decision-making processes, capital budget preparations and appropriations, and implementation and review of performance.

Answer and Explanation:

Human capital, physical capital, and financial capital all greatly contribute to economic growth. Social capital, however, does not. This is because social capital is a construct, rather than a natural type of capital.

Which of the following is not a capital structure? ›

Therefore, Gross Profit Method is not an approach to the Capital Structure.

The process involves analyzing a project's cash inflows and outflows to determine whether the expected return meets a set benchmark. The major methods of capital budgeting include discounted cash flow, payback analysis, and throughput analysis.

Although there are a number of capital budgeting methods, three of the most common ones are discounted cash flow, payback analysis, and throughput analysis.

A sunk cost is that cost which has already been incurred and can not be recovered. Hence this will not be included in capital budgeting.

Answer and Explanation: One of the objectives of capital budgeting is to earn a satisfactory return on investment.

The decision depends on whether funds are available, how the projects fit together, and how risks associated to them can be handled.