25.1.1. What is Capital Budgeting?

Try these first

1. 1.

   What is capital budgeting?

   Hint

   Think about what kind of decisions it involves.

2. 2.

   Why is risk management important in capital budgeting?

   Hint

   Consider the consequences of a wrong investment decision.

3. 3.

   What is the main purpose of capital budgeting?

   • Short-term gains
   • Evaluate major investments
   • Reduce costs

   Hint

   Think about the kind of decisions it helps organizations make.

4. 4.

   True or False: Capital budgeting is primarily concerned with short-term cash flow.

   • True
   • False

   Hint

   Consider the timeframe of the investments.

5. 5.

   You are a financial analyst for a tech startup considering two projects: upgrading servers or developing a new software application. List the factors you consider for capital budgeting.

   Hint

   What long-term impacts might each choice have?

6. 6.

   A company has to choose between two equally profitable ventures. One is a high-risk software project with rapid growth potential, and the other is a stable hardware upgrade with guaranteed clients. How do you evaluate which project to choose?

   Hint

   Think about what the company's priorities are: growth or stability?