Question

Which of the following factors highlight the importance of capital budgeting decisions

Options

• Long Term Implications

• Huge Amount of Funds

• High Risk

• All of the above

Answer 1

All of the above

Explanation -

The following factors underscore the significance of capital budgeting decisions :

1. Long-Term Consequences: Investing in capital assets (long-term assets) pays off in the long run. As a result, they have an impact on a company's future prospects. The capital budgeting decisions made by a corporation determine its long-term growth potential.
2. Significant Sums of Money: Investing in fixed capital necessitates a large sum of money. As a result, capital budgeting decisions become even more critical, as large sums of money are locked up for extended periods of time. These decisions are difficult to reverse once made. As a result, capital budgeting decisions must be carefully considered after a thorough examination of the entire amount of funds required and the sources from which they will be obtained.
3. High Risk: Fixed assets entail a significant amount of money and, as a result, a significant amount of risk. Such actions are dangerous since they affect the company's long-term viability. For example, while deciding whether to buy new machinery, there is a risk that the return on investment will be greater than the cost of the machinery.