FINA Chapter 9 (Definition)

What is Step 2 of the capital budgeting process

Review and analysis

Which of the following statements is correct for a project with a negative NPV?

The cost of capital exceeds the IRR

Capital rationing may be beneficial to a firm if it:

weeds out proposals with weaker or biased NPVs.

What is Step 3 of the capital budgeting process

Decision making

What is the financing decision?

Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations

What is Step 5 of the capital budgeting process

Follow-Up

What is the dividend decision?

If you can't find investments that make your minimum acceptable rate, return the cash to owners of your business

What is Step 4 of the capital budgeting process

Implementation

What is the investment decision

Invest in assets that earn a return greater than the minimum acceptable hurdle rate

Projects that compete with one another so that the acceptance of one eliminates from further consideration all other projects that serve a similar function.

Mutually Exclusive

The "gold standard" of investment criteria refers to what?

NPV

What is Step 1 of the capital budgeting process

Proposal generation

The primary purpose of capital budgeting is to:

maximize the shareholders' wealth.