NO1.1 Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases (or projects) it should accept, and which should be declined. This process is used to create a quantitative view of each proposed fixed asset investment, thereby giving a rational basis for making a judgment.

Which of the following is NOT an advantage of the capital budget process?    Cautious review of infrastructure projects to prevent mistakes   Routine purchase of infrastructure assets   Facilitate borrowing to finance all infrastructure projects   Improve equity across generations

Capital rationing: Select one: O a. assures shareholder wealth maximization. O b. is a way of preserving the assets of the firm over the long term. O c. assures maximum potential profitability. O d. is a less than optimal way to arrive at capital budgeting decisions.

The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm’s strategic goals. Companies often use several methods to evaluate the project’s cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. The discounted payback period improves on the regular payback period by accounting for the time value of money.   Managers have been slow to adopt the IRR, because percentage returns are a harder concept for them to grasp.   For most firms, the reinvestment rate assumption in the NPV is more realistic than the assumption in the IRR.     True or False: Sophisticated firms use only the NPV method in capital budgeting decisions.…

8. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. The NPV shows how much value the company is creating for its shareholders. For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR. Managers have been slow to adopt the IRR, because percentage returns are a harder concept for them to grasp. is the single best method to use when making capital budgeting decisions.

Capital investment (sometimes also referred to as capital budgeting) is a company’s contribution of funds toward the acquisition of long-lived (long-term or capital) assets for further growth. True / False

Incremental cash flows:  a. refer to only cash flows which occur at the end of a project b. are cash flows which change if you proceed with the project c. refer to only cash flows which occur at the start of a project d. are never included in capital budgeting analysis e. refer to the existing cash flows of the business

I'm not sure if I am doing this correctly, also not sure which ones to choose for the last question.

How can I explain these?

Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply.   -The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.   -The firm’s forecasted sales are unexpectedly increased.   -The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable.     Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm’s AFN?   -Yes, dividends still affect a firm’s AFN even though they are paid out of after-tax earnings.   -No, dividends do not affect a firm’s AFN, because they are paid…