Question

​Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He is using capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board? Group of answer choices

Answer 1

Answer: A. He will quite certainly gain approval since the project has a positive net present value.

Explanation:

The options are:

A. He will quite certainly gain approval since the project has a positive net present value.

B. Approval is probable but not likely as he failed to account for the time value of money.

C. He will not gain approval as he failed to consider whether the project is leading edge or not.

D. Approval is probable but not likely as the project has been constructed on estimates instead of facts.

Capital budgeting is used to know whether the long term investment for a particular organization's is actually worth investing in or not by the company.

Based on the scenario in the question, since the present value of the estimated future cash flows is greater than the cost of the project, Ashton will quite certainly gain approval since the project has a positive net present value.