CS Executive · Corporate Accounting and Financial Management · Capital Budgeting
Which of the following best describes capital budgeting?
Capital budgeting is the process of deciding how to allocate long-term funds among investment projects whose benefits are spread over several years. It differs from short-term cash planning, annual expense budgeting or dividend decisions, which do not involve long-term commitment of funds to fixed assets.
- APlanning the monthly cash requirement for paying wages and creditors
- BDeciding how to allocate long-term funds to projects whose benefits extend over several yearsCorrect
- CPreparing the budget of selling and distribution expenses for one year
- DFixing the dividend payout ratio for the coming year
Explanation
Capital budgeting is the process of evaluating and selecting long-term investment proposals whose returns arise over multiple periods. Monthly cash planning and annual expense budgets concern short-term operations, and dividend payout is a distribution decision, so those options are wrong.
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