How does the capital budgeting process begin?
A)By analysing alternate projects
B)By forecasting the future consequences for the firm of each potential project
C)By compiling a list of potential projects
D)By evaluating the net present value (NPV)of each project's cash flows

Question

Quizplus · Accepted Answer

The capital budgeting process begins by compiling a list of potential projects. This is the first step in the process as it allows for a comprehensive evaluation of all options available to the firm. Once this list has been compiled, the firm can then move on to analyzing alternate projects, forecasting the future consequences of each potential project, and evaluating the net present value (NPV) of each project's cash flows. However, without a list of potential projects, the capital budgeting process cannot begin.

How Does the Capital Budgeting Process Begin