For which of the following reasons are capital budgeting decisions important to a business organization? Check all that apply. C
apital investments are relatively inexpensive. Capital investments have multiyear life spans, so mistakes linger for a long time. Capital investments are difficult to reverse without incurring large additional expenses.
The correct answers are letters "B" and "C": Capital investments have multiyear life spans, so mistakes linger for a long time; Capital investments are difficult to reverse without incurring large additional expenses.
Explanation:
Firms use Capital Budgeting to determine if a project like building a new plant or developing a new plant is worth pursuing. The three more common capital budgeting approaches are the <em>Net Present Value (NPV), the Internal Rate of Return (IRR) </em>and <em>the Payback Period Methods (PPM).
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<em>Capital budgeting must be correctly computed because these estimates are not modified in the short-run. Capital budgets aim to give investors and managers an idea of the necessary resources of the firm over several years. Also, adding information or modifying a capital budget could represent a large investment in a firm since it could imply changing the course of current operations and implement new ones.</em>
<span>In the five forces model, the more that companies compete against one another for customers, the lower the level of profits is likely to be for that industry.</span>
