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What is the primary purpose of capital budgeting?
What is the primary purpose of capital budgeting?
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Practice Questions
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Q1
What is the primary purpose of capital budgeting?
To determine the profitability of a project
To assess the liquidity of a company
To evaluate the efficiency of operations
To manage day-to-day expenses
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Capital budgeting is primarily used to evaluate the profitability and feasibility of long-term investments or projects.
Questions & Step-by-step Solutions
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Q
Q: What is the primary purpose of capital budgeting?
Solution:
Capital budgeting is primarily used to evaluate the profitability and feasibility of long-term investments or projects.
Steps: 5
Show Steps
Step 1: Understand that capital budgeting is a process used by companies.
Step 2: Know that it helps companies decide which long-term investments or projects to pursue.
Step 3: Learn that the main goal is to evaluate if these investments will be profitable.
Step 4: Recognize that companies look at the feasibility, meaning if the project can realistically be done.
Step 5: Conclude that capital budgeting helps ensure that money is spent wisely on projects that will benefit the company in the long run.
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