What is the significance of capital budgeting?

Practice Questions

Q1
What is the significance of capital budgeting?
  1. It focuses on short-term financial planning
  2. It assesses long-term investment projects
  3. It determines tax policies
  4. It manages daily operational costs

Questions & Step-by-Step Solutions

What is the significance of capital budgeting?
  • Step 1: Understand what capital budgeting is. It is the process of planning and evaluating long-term investments.
  • Step 2: Recognize that businesses use capital budgeting to decide which projects to invest in.
  • Step 3: Learn that capital budgeting helps assess the potential returns of these projects.
  • Step 4: Realize that it also evaluates the feasibility, meaning whether the project can be successfully completed.
  • Step 5: Understand that making good capital budgeting decisions can lead to increased profits and growth for the business.
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