A financial manager facing a capital budgeting decision must decide whether to:

Question

Quizplus · Accepted Answer

The decision to buy new machinery or repair the old is a capital budgeting decision, which involves the allocation of financial resources for long-term investment projects. While issuing stock or debt securities, using money or capital markets, or using primary or secondary markets may be methods to raise funds for the investment, the ultimate decision regarding the investment project itself is the most critical factor. In this case, the best choice would depend on a cost-benefit analysis, including factors such as the expected lifespan of the machinery, the cost of repair versus replacement, the impact on production or efficiency, and the cost of capital. Therefore, the decision between buying new machinery or repairing the old is the most relevant choice for the financial manager facing a capital budgeting decision.

A Financial Manager Facing a Capital Budgeting Decision Must Decide