2. The importance of capital budgeting and post-audits

Capital budgeting decisions are among the most important decisions that financial managers make.

Indicate whether each of the following statements regarding capital budgeting is true or false.

Statements	True	False
An incentive program that encourages new ideas, whether for new products or better processes, is a good way to generate capital investment proposals.
Capital budgeting is the long-term planning for the purchase of assets whose cash flows extend beyond one year.
A post-audit is sometimes overlooked and dismissed as being of little value.
Ideas for capital investment should come from the engineering and sales departments rather than from the finance department.

Capital projects are either mutually exclusive or independent. Which of the following statements are correct? Check all that apply.

A project cannot be independent and mutually exclusive at the same time.

Acceptance or rejection of an independent project does not affect the cash flows of other projects.

Acceptance of a mutually exclusive project precludes the acceptance of any competing project.

Mutually exclusive projects are projects that, whether accepted or rejected, do not affect the cash flows of other projects.

The decision to accept or reject a project may depend on whether the project is independent or mutually exclusive.