Which of the following statements is correct?
A) Capital budgeting analysis is not a framework for evaluating all business decisions; it is only a tool for the "financial" types.
B) Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without considering the time value of money.
C) Whether the investment is one in a business strategy, building a new warehouse, seeking fuel efficient methods of doing business, upgrading information technology systems, or investing in human resources, we should not try to quantify the benefits and cost of these choices in order to evaluate them properly.
D) To achieve success over time, a firm's managers must identify and invest in projects that provide positive net present values to maximize shareholder wealth.

Question

Quizplus · Accepted Answer

The correct statement is D, as it accurately describes the purpose of capital budgeting analysis. The goal of this analysis is to identify projects that will generate positive net present values, which in turn will maximize shareholder wealth over time. Option A is incorrect because capital budgeting analysis is relevant for evaluating most business decisions, not just financial ones. Option B is also incorrect as proper analysis will consider the time value of money. Option C is incorrect as quantifying the benefits and costs of business decisions is an essential part of evaluating whether the investment is worthwhile or not.

Which of the Following Statements Is Correct