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Reading 44: Capital Budgeting - LOS a ~ Q1-2

Q1. Which of the following types of capital budgeting projects are most likely to generate little to no revenue?

A)   Replacement projects to maintain the business.

B)   New product or market development.

C)   Regulatory projects.

Q2. Which of the following steps is least likely to be an administrative step in the capital budgeting process?

A)   Conducting a post-audit to identify errors in the forecasting process.

B)   Arranging financing for capital projects.

C)   Forecasting cash flows and analyzing project profitability.

答案和详解如下:

Q1. Which of the following types of capital budgeting projects are most likely to generate little to no revenue?

A)   Replacement projects to maintain the business.

B)   New product or market development.

C)   Regulatory projects.

Correct answer is C)

Mandatory regulatory or environmental projects may be required by a governmental agency or insurance company and typically involve safety-related or environmental concerns. The projects typically generate little to no revenue, but they accompany other new revenue producing projects and are accepted by the company in order to continue operating.

Q2. Which of the following steps is least likely to be an administrative step in the capital budgeting process?

A)   Conducting a post-audit to identify errors in the forecasting process.

B)   Arranging financing for capital projects.

C)   Forecasting cash flows and analyzing project profitability.

Correct answer is B)         

Arranging financing is not one of the administrative steps in the capital budgeting process. The four administrative steps in the capital budgeting process are:

1. Idea generation

2. Analyzing project proposals

3. Creating the firm-wide capital budget

4. Monitoring decisions and conducting a post-audit

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