A good capital budgeting decision is:
A) one in which the benefits of the project are equal to the cost of the asset.
B) one in which the benefits of the project are less than the cost of the asset.
C) one in which the benefits of the project are more than the cost of the asset.
D) all of the above.

Question

Quizplus · Accepted Answer

A good capital budgeting decision is one in which the benefits of the project are more than the cost of the asset. This means that the project will generate a positive net present value and increase the value of the firm. Choices A and B are not optimal because in the former the benefits are only equal to the cost, which does not create any value for the firm, and in the latter the benefits are less than the cost, resulting in a negative net present value and a loss for the firm. Therefore, the best choice is option C, because it represents a profitable investment that creates value for the firm.

A Good Capital Budgeting Decision Is