25.1 - Meaning and Importance of Capital Budgeting
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Practice Questions
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What is capital budgeting?
💡 Hint: Think about investments that last for a long time.
Why is capital budgeting important?
💡 Hint: Consider how these decisions affect a company’s future.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does capital budgeting primarily focus on?
💡 Hint: Think about investments that require a lot of planning.
True or False: Once a capital budgeting decision is made, it can be easily reversed.
💡 Hint: Consider the nature of long-term commitments.
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Challenge Problems
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A company has to decide between two projects: Project A requires a $1 million investment and promises $250,000 annually for 5 years, while Project B requires $800,000 and promises $200,000 annually for 6 years. Calculate the NPV for both with a 5% discount rate and decide which project is better.
💡 Hint: Consider how each project's cash flow timing affects the outcome.
Discuss how a small startup might incorporate risk management into its capital budgeting process. Provide examples of specific strategies.
💡 Hint: Think about how small businesses might limit their financial exposure.
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