Question

One of the most important financial management activities that a firm undertakes is its evaluation and allocation of investment funds to support its future survival and growth. These activities may be motivated by the desire to expand the firm's revenues, reduce its costs, or satisfy its mandatory or voluntary legal, health, and safety requirements. They may have, more or less, multiyear effects on the organization and may or may not be considered as capital budgeting activities. Capital budgeting is the process of: O Planning and managing the firm's normal operating expenditures O Planning and controlling investments in assets that are expected to produce cash flows for more than one year The capital budgeting process in a company involves evaluation of cash flows, risk analysis, correlation with the portfolio of projects in the company etc. To make this process more streamlined, firms identify whether the projects qualify as a capital budgeting project or not and generally analyze them in different vertical categories. Which of the following are examples of a capital budgeting project? Check all that apply. Lancashire Railway Co.'s purchase of a new building Amalgamated Football League Inc.'s purchase of monthly office supplies Edinburgh Exports Inc.'s expenditures for the company's advertising campaign For which of the following reasons are capital budgeting decisions important to a business organization? Check all that apply. □ Capital investments are difficult to reverse without incurring large additional expenses. Capital investments have multiyear life spans, so mistakes linger for a long time. Capital investments are relatively inexpensive.

Answer 1

1: planning and controlling investments in assets that are expected to produce cash flows fo more than 1 year.

(capital budgeting refers to planning investments in fixed assets or poejects.)

2: Lancashires purchase of a new building

(This is a long term asset while monthly supplies and advertising expenses are utilities)

3: Options 1 and 2

Capital expenses are on long term projects and so run across multiple years. They are investments in fixed assets and so are difficult to reverse.Thedy are expensive investments.