Discuss the differences between the rational budgeting and incremental budgeting models. What advantages and disadvantages can you identify relating to both models? What improvements, if any, would you make to either model?
Capital budgeting projects include all of the following with the exception of
the purchase of a six-month treasury bill.
the expansion of a plant.
the development of a new product.
the replacement of a piece of equipment.
Capital budgeting is needed to properly allocate the large dollar amounts for major expansion and equipment purchases. The process is often perceived by employees as being very political. What procedures should an organization use to eliminate that perception and to provide for a good, consistent evaluation of capital projects?
Given the following project cash flows, identify the correct statement(s). The firm's cost of capital is 15%.
I. This project will have two IRRs.
II. The NPV of the project is $180.57.
III. The profitability index of the project is 2.61.
IV. The payback period of
'Budgeting is an unnecessary burden on many managers. It takes time away from important day-to-day problems.' Do you agree or disagree? Depending on your point of view, please list two advantages or disadvantages to budgeting.