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Capital Budgeting
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Capital Budgeting
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23 Questions

1. Define the problem - determine possible alternatives - prepare estimates - identify possible constraints - select the best alternative.

2. The book value of old equipment is not relevant because you cannot change what has already been spent - current disposal price of old equipment is relevant since future cash flows will differ among alternatives - the gain or loss on sale of equipme

3. Limits within which the volume of activity can vary and cost relationships still remain valid.

4. A cost that differs between alternatives - also known as incremental cost or relevant cost.

5. Involves taking the operating plans and developing proforma financial statements - forecasting financing needs - and measurement (control) criteria.

6. Broad - long-range plans such as developing new technologies in a particular field.

7. Costs of a single process or a series of processes that simultaneously produce two or more products of significant value.

8. A cost that is incurred to support a number of activities and cannot be directly traced to any of them

9. The strategic use of outside resources by organizations to perform tasks to produce products traditionally handled by or produced using internal staff and resources.

10. The profit a firm would make id there were no debt and no non-operating assets.

11. The acquisition cost o assets - also known as acquisition or original cost.

12. The dollar value of assets that is required to create a dollar of sales

13. The projection of both volume and dollar value of sales for a future period.

14. A relevant cost in decision making but one for which information might not be available.

15. The cash flow actually available for distribution to investors after the firm has made all necessary investments in fixed assets and permanent working capital necessary to support on-going operations.

16. A statement defining the general purpose o the company.

17. A cost that is expected to differ among alternative future courses of action - also known as differential and relevant cost

18. The point in the manufacturing process where the joint products produced become individually identifiable.

19. A cost that could be eliminated in whole or in part if a different course of action is taken that would either end the need for the activity or increase efficiency

20. A net cash inflow that will be lost if a particular course of action under consideration is taken as compared to another possibility.

21. A cost that has already occurred and is not affected by a capital budgeting decision.

22. Projected financial statements based on a given set of assumptions.

23. The plans used to implement the corporate strategy involving the identification of the responsibility for implementation - specific tasks to be accomplished - and revenue and costs targets - among other things.

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