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CMA Intermediate · Financial Management and Business Data Analytics · Capital Budgeting

Which of the following is the correct sequence of the main stages in the capital budgeting process?

The correct sequence is identification of investment opportunities, screening and evaluation, selection and approval, implementation, and finally performance review. A project must exist before it is appraised, must be approved before money is spent, and can be reviewed against forecasts only after implementation.

  1. AEvaluation of proposals, identification of investment opportunities, selection, implementation, performance review
  2. BIdentification of investment opportunities, screening and evaluation, selection and approval, implementation, performance reviewCorrect
  3. CSelection and approval, identification of opportunities, evaluation, performance review, implementation
  4. DImplementation, identification of opportunities, evaluation, selection, performance review

Explanation

Projects are first identified, then screened and evaluated using appraisal techniques, then selected and approved, then implemented, and finally reviewed after implementation. The other options place evaluation or implementation before the proposal is identified or approved, which is illogical.

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