Question

Which one of the following is a capital budgeting decision? Multiple Choice O Determining how many shares of stock to issue. Ο O Deciding whether or not to purchase a new machine for the production line Deciding Ο Deciding how to refinance a debt issue that is maturing. Ο Determining how much inventory to keep on hand. Ο Determining how much money should be kept in the checking account

Answer 1

Option b i.e deciding whether or not to purchase a new machine for the product line.

In capital budgeting, decision is made about whether investment should be made in modification or replacement of the project. Fir this purpose various capital budgeting tools are used, like, NPV, IRR, Payback period, Discounted payment period, MIRR, EAA, to check whether the project is profitable or not, and/ or investment should be made in the project or not.

We does not made decision about number of shares to be issued, refinancing debt issues, holding inventory and so on in the capital budgeting decision. Decisions about these things are made in capital structure, cash management and inventory management.