There are several practical aspects of capital budgeting that complicate what ap
ID: 2761541 • Letter: T
Question
There are several practical aspects of capital budgeting that complicate what appears to be a straightforward procedure. Which of the following can add significant complexity to the practice of capital budgeting?
a) At any point in time, the firm will not know all of the capital projects that should be considered and can probably only make uncertain estimates of the firms marginal cost of capital and each projects future costs and revenues.
b) At any point in time, the firm will know with certainty all of the capital projects taht should be considered and will know with certainty the shape of its future marginal cost of capital schedule and each projects future costs and revnues.
c) At any point in time, the firm will not know all of the capital projects that should be considrered but will know with certainty the riskiness of each projects future cost of revenues.
d) At any point in time, the firm will not know all of the capital projects that should be considred but will know with certainty the shape of its future marginal cost of capital schedule.
Explanation / Answer
b) At any point in time, the firm will know with certainty all of the capital projects taht should be considered and will know with certainty the shape of its future marginal cost of capital schedule and each projects future costs and revnues.
As the firm will consider all Available Capital Projects only after making an accurate estimate of Cash Flows, cost of capital and Marginal Revenues.