Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment invol

Question

kondor19780726 [428]

3 years ago

15

Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment invol

ves a long-term commitment, and the decision could be difficult or impossible to reverse.
True / False.

Business

1 answer:

VARVARA [1.3K] · Answer 1 · 2022-02-27T05:04:56+03:00

Answer:

True.

Explanation:

Capital budgeting is the process whereby a business carries out an evaluation of potential major projects or investments. Examples of these investments and projects may include construction of a new plant or a big investment in an external venture.

A capital budget is risky because it is a plan for investing in long-term assets such as buildings and machinery, therefore, risk is inevitable.

The various risks include:

Investment of large amounts of cash.
Cash flows not being paid in time as agreed.
The risk of the investee company collapsing.
The management sinking the invested funds in risky projects.
Decisions could be difficult or impossible to reverse.