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journal article A Note on the Arithmetic of Capital Budgeting DecisionsThe Journal of Business Vol. 30, No. 3 (Jul., 1957) , pp. 193-201 (9 pages) Published By: The University of Chicago Press
https://www.jstor.org/stable/2350725 Read and download Log in through your school or library Alternate access options For independent researchers Read Online Read 100 articles/month free Subscribe to JPASS Unlimited reading + 10 downloads Purchase article $14.00 - Download now and later Journal Information The Journal of Business ceased publication with the November 2006 issue (Volume 79, Number 6). Founded in 1928, The Journal of Business was the first scholarly journal to focus on business-related research and played a pioneering role in fostering serious academic research about business. However, in appreciation of the increasing specialization in business scholarship, as reflected in the emergence of many specialized business journals, the faculty of the University of Chicago's Graduate School of Business decided after careful deliberation and extensive dialogue to cease publication of the more broadly focused Journal at the end of 2006, after nearly eight decades of publication by the University of Chicago Press. Publisher Information Since its origins in 1890 as one of the three main divisions of the University of Chicago, The University of Chicago Press has embraced as its mission the obligation to disseminate scholarship of the highest standard and to publish serious works that promote education, foster public understanding, and enrich cultural life. Today, the Journals Division publishes more than 70 journals and hardcover serials, in a wide range of academic disciplines, including the social sciences, the humanities, education, the biological and medical sciences, and the physical sciences. Rights & Usage This item is part of a JSTOR Collection. MODULE 9 CAPITAL BUDGETING THEORIES: Basic Concepts Decision Making Process 2.The first step in the decision-making process isto A.determine and evaluate possible courses of action. B.identify the problem and assign responsibility. C.make a decision. D.review results of the decision. Strategic planning 39. Strategic planning is the process of decidingon an organization’ A.minor programs and the approximate resources tobe devoted to them B.major programs and the approximate resources tobe devoted to them C.minor programs prior to consideration of resourcesthat might be needed D.major programs prior to consideration of resourcesthat might be needed Capital budgeting defined 1.Thelong-termplanningprocessformakingandfinancinginvestmentsthataffectacompany’s financial results over a number of years is referredto as A.capital budgetingC.master budgeting B. strategic planningD.long-range planning 3.Capital budgeting is the process A.used in sell or process further decisions. B.of determining how much capital stock to issue C.of making capital expenditure decisions D.of eliminating unprofitable product line 5.A capital investment decision is essentially adecision to: A. exchange current assets for current liabilities. B.exchange current cash outflows for the promiseof receiving future cash inflows. C.exchangecurrentcashflowfromoperatingactivitiesforfuturecashinflowsfrominvesting activities. D.exchange current cash inflows for future cash outflows. Risk & return 6.The higher the risk element in a project, the A.more attractive the investment is. B.higher the net present value is. C.higher the cost of capital is. D.higher the discount rate is. 9.Cost of capital is the A.amount the company must pay for its plant assets. B.dividends a company must pay on its equity securities. C.cost the company must incur to obtain its capitalresources. D.costthecompanyischargedbyinvestmentbankerswhohandletheissuanceofequityor long-term debt securities. 14.How should the following projects be listed inorder of increasing risk? A.New venture, replacement, expansion. B.Replacement, new venture, expansion. C.Replacement, expansion, new venture. D.Expansion, replacement, new venture. 41.Problemsassociatedwithjustifyinginvestmentsinhigh-techprojectsofteninclude discount rates that are too A.low and time horizons that are too long B.high and time horizons that are too long C.high and time horizons that are too short D.low and time horizons that are too short 60.In evaluating high-tech projects, A.only tangible benefits should be considered. B.only intangible benefits should be considered. C. both tangible and intangible benefits should beconsidered. D.neither tangible nor intangible benefits shouldbe considered. Types of capital projects 4.A project that when accepted or rejected will notaffect the cash flows of another project. Which of the following capital budgeting methods assumes that intermediate cash inflows are reinvested at the minimum acceptable rate of return *?Therefore, the Internal Rate of Return is a method of Capital Budgeting that assumes cash-inflows are reinvested at the project's rate of return.
Which method assumes that the intermediate cash inflows are reinvested at the cost of capital?The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the risk-free rate.
Which of the following capital budgeting techniques implicitly assumes that the cash flows are reinvested at the company's minimum required rate of return?Use of the IRR method implicitly assumes that the project's intermediate cash inflows are reinvested at the required rate of return used under the NPV method. 7. If a project's cash flows are discounted at the internal rate of return, the NPV will be zero.
Does IRR assume reinvestment?IRR does consider reinvestment rate assumption. The IRR assumes that the company will reinvest cash inflows at the rate of return for the entire lifetime of the project. When the reinvestment rate is too high to be feasible, the IRR of the project will fall.
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Which of the following capital budgeting methods assumes that intermediate cash inflows are reinvested at the minimum acceptable rate of return?
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