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Which of the following describes the need for capital budgeting? Select one: a. A company’s resources...

Which of the following describes the need for capital budgeting? Select one: a. A company’s resources are limited so that it will only choose between those projects that will deliver the highest wealth increase for the company. b. The company is aware of environmental issues and will only allocate to projects that are sustainable and for the good of the environment. c. The company should allocate to funds only to projects that produce a positive NPV as that will look good on any prospectus for potential new investors. d. The management of the company is against spending on projects at this time.

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Answer #1

The correct answer is option A.

Explanation:- The need for capital budgeting arises from the fact that resources such as capital, labor, material, supervisory expertise are available in limited quantity and the firm wants to make best use of these resources in order to maximize the firm's wealth. In the process of capital budgeting, a vast number of project alternatives are available and the firm must rank the alternatives in the order of increasing wealth. . A firm uses techniques such as net present value to evaluate the alternatives and then choose the alternative that has the highest net present value. An alternative with the highest net present value will maximize the firm's wealth.

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