orca_share_media1488370487628.doc - Chapter8 LearningGoals 1 2 3 ,,sunkcostsan

orca_share_media1488370487628.doc - Chapter8 LearningGoals...

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Chapter 8 Capital Budgeting Cash Flows Learning Goals 1. Understand the motives for key capital expenditure and the steps in the capital budgeting process. 2.Define basic capital budgeting terminology. 3. Discuss relevant cash flows, expansion versus replacement decisions, sunk costs and opportunity  costs, and international budgeting. 4. Calculate the initial investment associated with a proposed capital expenditure. 5. Find the relevant operating cash inflows associated with a proposed capital expenditure. 6. Determine the terminal cash flow associated with a proposed capital expenditure. True/False 1. Capital budgeting techniques are used to evaluate the firm’s fixed asset investments which provide  the basis for the firm’s earning power and value. Answer: TRUE Level of Difficulty: 1 Learning Goal: 1 Topic: Concept of Capital Budgeting 2. The purchase of additional physical facilities, such as additional property or a new factory, is an  example of a capital expenditure. Answer: TRUE Level of Difficulty: 1 Learning Goal: 1 Topic: Capital Budgeting Terminology 3. Capital budgeting is the process of evaluating and selecting short-term investments consistent with  the firm’s goal of owner wealth maximization. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Concept of Capital Budgeting
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Chapter 8 Capital Budgeting Cash Flows 344 4. A $60,000 outlay for a new machine with a usable life of 15 years is an operating expenditure that  would appear as a fixed asset on the firm’s balance sheet. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Capital Budgeting Terminology 5. Capital expenditure is an outlay of funds invested only on fixed assets and is expected to produce  benefits over a period of time greater than one year. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Capital Budgeting Terminology 6. An outlay for advertising and management consulting is considered to be a current expenditure. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Capital Budgeting Terminology 7. Capital expenditure proposals are reviewed to assess their appropriateness in light of the firm’s  overall objectives and plans, and to evaluate their economic validity. Answer: TRUE Level of Difficulty: 2 Learning Goal: 1 Topic: Concept of Capital Budgeting 8. A firm with limited funds must ration its funds by allocating them to projects that will maximize  share value.
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