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CMA Final · Strategic Financial Management · Investment Decisions, Project Planning and Control

In the capital budgeting process of a manufacturing firm, which of the following is the correct sequence of stages?

The correct sequence is identification of investment opportunities, then screening and evaluation, then implementation, and finally performance review or post-audit. Ideas must exist before they are appraised, and projects must be approved and executed before actual results can be compared with forecasts.

  1. AProject screening and evaluation, identification of investment opportunities, implementation, post-audit
  2. BIdentification of investment opportunities, project screening and evaluation, implementation, performance review (post-audit)Correct
  3. CImplementation, identification of opportunities, evaluation, post-audit
  4. DIdentification of opportunities, implementation, evaluation, post-audit

Explanation

Capital budgeting starts with generating and identifying investment ideas, then screens and evaluates them, selects and implements the approved projects, and finally reviews actual performance against forecasts through a post-audit. The other orders place evaluation or implementation before identification, which is illogical.

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