The primary purpose of capital budgeting is to:
A) Determine the amount of cash and inventory to keep on hand.
B) Estimate the initial cost of a project.
C) Distinguish projects that have at least a ﬁve-year life from those that don't.
D) Determine the risk level of a project.
E) Identify projects that produce cash ﬂows that exceed the cost of the project.

Question

Quizplus · Accepted Answer

The primary purpose of capital budgeting is to identify and select projects that will result in positive cash flows, i.e., projects that produce cash flows that exceed the cost of the project. Choices A, B, C, and D may be elements or steps in the capital budgeting process, but they are not the primary purpose of capital budgeting.

The Primary Purpose of Capital Budgeting Is To