Question

Lexi, Lauren, and Madeleine wrapped up their discussion with a look at the steps involved with capital budgeting.  “The steps are identifying opportunities, evaluating opportunities, implementing the project and conducting a post-audit,” said Lexi.   “No”, said Lauren, “you missed the pre-audit.  Capital budgeting includes a pre-audit.”  “Once more, you are both wrong,” said Madeleine.  “What about the pre-identification of post-audit opportunities?” Is Lexi right?  Is Lauren right?  Is Madeleine right?  Are none of them correct?  Support your answer with examples, as appropriate.

Answer 1

None of them is completely right as capital budgeting is a process involving five steps -

1.identification of potential opportunities and evaluations of opportunities

2.Estimation of costs that are involved with the project.

3.Estimation of overall cash inflows and cash outflows of project.

4. Assessment of the risk involved in the whole process

5. Implementation of the overall project.

It doesn't require a pre audit and post Audit so none of them are correct.