3. The basic process and rules for capital budgeting Aa Aa The capital budgeting process consists of the following activities: I. Estimating the relevant cash flows II. Reviewing a project's post-implementation and post-termination performance III. Evaluating alternatives and selecting the projects to be implemented IV. Generating capital investment project proposals What is the correct sequence for these activities? I, II, , IV O I, IV, III, II O IV, II, III, I O IV, I, III, II There are several practical aspects of capital budgeting that complicate what appears to be a straightforward procedure. Which of the following can add significant complexity to the practice of capital budgeting? At any point in time, the firm will know with certainty all of the capital projects that should be considered but can probably only make uncertain estimates of the firm's marginal cost of capital and each project's future costs and revenues. At any point in time, the firm will know with certainty all of the capital projects that should be considered and will know with certainty the shape of its future marginal cost of capital schedule and each project's future costs and revenues. At any point in time, the firm will not know all of the capital projects that should be considered but will know with certainty the riskiness of each project's future costs and revenues. At any point in time, the firm will not know all of the capital projects that should be considered and can probably only make uncertain estimates of the firm's marginal cost of capital and each project's future costs and revenues There are several basic principles that should be applied when the future expected cash flows of a proposed project are estimated. Read the following statements and indicate whether they reflect best practices when performing capital budgeting analysis. A project's cash flows should be measured Sunk costs should not be included in the calculation of a on a pretax basis. project's cash flow stream. True or False: This represents a recommended practice True or False: This represents a recommended practice for the estimation of a project's cash flows for the estimation of a project's cash flows True; this represents the best way to measure False; there is a better way to measure the the cash flows of the project. project's cash flows. False; there is a better way to measure the True; this represents the best way to measure the cash flows of the project. project's cash flows