Question

In capital budgeting:

	a.	​ If a firm accepts projects without regard for risk, then the company can change its overall risk profile firm as perceived by investors.
	b.	​ Projects are thought to be incremental to the normal business of the firm.
	c.	​All of the above.
	d.	​ Risk is important and should be included in the analysis but often isn’t.

Answer 1

C. All the above

Reason :

Capital budgeting is the process a business undertakes to evaluate potential major projects or investments. Construction of a new plant or a big investment in an outside venture are examples of projects that would require capital budgeting before they are approved or rejected.

As part of capital budgeting, a company might assess a prospective project's lifetime cash inflows and outflows to determine whether the potential returns that would be generated meet a sufficient target benchmark. The process is also known as investment appraisal.

Ideally, businesses would pursue any and all projects and opportunities that enhance shareholder value. However, because the amount of capital any business has available for new projects is limited, management uses capital budgeting techniques to determine which projects will yield the best return over an applicable period.

Some methods of capital budgeting companies use to determine which projects to pursue include throughput analysis, net present value (NPV), internal rate of return, discounted cash flow, and payback period.