Which of the following would not involve a capital-budgeting analysis?

Business

1 answer:

JulijaS [17]3 years ago

7 0

Answer:

The correct answer is B. The adoption of a new cost driver for overhead application.

Explanation:

This option is chosen because it is not directly related to organizational capital, or the production of goods or the provision of services. Otherwise it happens with options A and C, which does merit an analysis of the capital budget.

Option B is only taken into account in the analysis of the sales budget or production costs.

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lapo4ka [179]

This answer requires that we fill in the blanks

The net present value (NPV) method estimates how much a potential project will contribute to shareholder wealth
The larger the NPV, the more value the project adds; and added value means a higher stock price.
The NPV calculation assumes that cash inflows can be reinvested at the project's risk-adjusted WACC
When the firm is considering independent projects, if the project's NPV exceeds zero the firm should accept the project.
When the firm is considering mutually exclusive projects, the firm should accept the project with the higher positive NPV.

What is the NPV?

In order to get the NPV we have to make the following calculations for the projects A and B.

This is calculated as

Project A

-900 + 620/1.08 + 395/1.08² + 200/1.08³ + 250/1.08⁴

= $355. 237

For the project B

We would have to perform similar calculation

Hence we would have

-900 + 620/1.08 + 395/1.08² + 200/1.08³ + 250/1.08⁴

= 378.98

From the calculations that we have done above, we can see that the value for project B is greater hence we have to choose project B.