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Chapter 12

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Chapter 12
Chapter 12

Discussion Questions

|12-1. |What are the important administrative considerations in the capital budgeting process? |
| | |
| |Important administrative considerations relate to: the search for and discovery of investment opportunities, the |
| |collection of data, the evaluation of projects, and the reevaluation of prior decisions. |
| | |
|12-2. |Why does capital budgeting rely on analysis of cash flows rather than on net income? |
| | |
| |Cash flow rather than net income is used in capital budgeting analysis because the primary concern is with the amount|
| |of actual dollars generated. For example, depreciation is subtracted out in arriving at net income, but this non-cash|
| |deduction should be added back in to determine cash flow or actual dollars generated. |
| | |
|12-3. |What are the weaknesses of the payback method? |
| | |
| |The weaknesses of the payback method are:
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