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CS Executive · Corporate Accounting and Financial Management · Capital Budgeting

In the capital budgeting process, which of the following is the correct logical order of the stages?

The logical order is identifying investment opportunities, estimating cash flows and evaluating proposals, selecting and approving projects, implementing them, and finally reviewing performance against forecasts. Proposals must exist before they are evaluated, and review comes only after implementation.

  1. AEvaluation of proposals, identification of opportunities, implementation, selection
  2. BIdentification of investment opportunities, estimation of cash flows and evaluation, selection and approval, implementation and performance reviewCorrect
  3. CImplementation, selection, evaluation, identification
  4. DSelection and approval, identification, performance review, evaluation

Explanation

Firms first generate or identify proposals, then estimate cash flows and appraise them, then select and approve the best, then implement and finally review actual performance against estimates. The other orders place stages before the proposals exist or after the project is done.

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