{"id":33684,"date":"2024-04-15T09:20:16","date_gmt":"2024-04-15T09:20:16","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=33684"},"modified":"2024-04-15T09:20:16","modified_gmt":"2024-04-15T09:20:16","slug":"which-of-the-following-is-not-true-with-reference-to-capital-budgeting","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-is-not-true-with-reference-to-capital-budgeting\/","title":{"rendered":"Which of the following is not true with reference to capital budgeting?"},"content":{"rendered":"<p>[amp_mcq option1=&#8221;Capital budgeting is related to asset replacement decisions&#8221; option2=&#8221;Cost of capital is equal to minimum required rate of return&#8221; option3=&#8221;Timing of cash flows is relevant&#8221; option4=&#8221;Existing investment in a project is not treated as sunk cost&#8221; correct=&#8221;option2&#8243;]<!--more--><\/p>\n<p>The correct answer is: <strong>B. Cost of capital is equal to minimum required rate of return<\/strong><\/p>\n<p>Capital budgeting is the process of planning and managing a company&#8217;s long-term investments. It involves identifying, evaluating, and selecting investment projects that will help the company achieve its strategic goals.<\/p>\n<p>The cost of capital is the rate of return that a company must earn on its investments in order to satisfy its investors. It is a measure of the riskiness of a company&#8217;s investments and is used to discount future cash flows to their present value.<\/p>\n<p>The minimum required rate of return is the rate of return that a company must earn on its investments in order to break even. It is a measure of the opportunity cost of capital and is used to calculate the net present value of a project.<\/p>\n<p>The cost of capital is not equal to the minimum required rate of return because the cost of capital is a measure of risk, while the minimum required rate of return is a measure of opportunity cost. A company may be willing to accept a lower return on an investment that is less risky, even if it means that the project will not break even.<\/p>\n<p>In addition, the cost of capital is a weighted average of the costs of different types of capital, such as debt and equity. The minimum required rate of return is a single rate that is used to evaluate all projects.<\/p>\n<p>Therefore, the correct answer is: <strong>B. Cost of capital is equal to minimum required rate of return<\/strong><\/p>\n<p>Here is a brief explanation of each option:<\/p>\n<ul>\n<li>Option A: Capital budgeting is related to asset replacement decisions. This is true. Capital budgeting is used to evaluate whether or not to replace existing assets with new ones.<\/li>\n<li>Option B: Cost of capital is equal to minimum required rate of return. This is false. The cost of capital is a measure of risk, while the minimum required rate of return is a measure of opportunity cost. A company may be willing to accept a lower return on an investment that is less risky, even if it means that the project will not break even.<\/li>\n<li>Option C: Timing of cash flows is relevant. This is true. The timing of cash flows is important because it affects the present value of the cash flows.<\/li>\n<li>Option D: Existing investment in a project is not treated as sunk cost. This is true. Sunk costs are costs that have already been incurred and cannot be recovered. Existing investment in a project is not considered a sunk cost because it can be recovered if the project is abandoned.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>[amp_mcq option1=&#8221;Capital budgeting is related to asset replacement decisions&#8221; option2=&#8221;Cost of capital is equal to minimum required rate of return&#8221; option3=&#8221;Timing of cash flows is relevant&#8221; option4=&#8221;Existing investment in a project is not treated as sunk cost&#8221; correct=&#8221;option2&#8243;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[700],"tags":[],"class_list":["post-33684","post","type-post","status-publish","format-standard","hentry","category-business-finance","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Which of the following is not true with reference to capital budgeting?<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-is-not-true-with-reference-to-capital-budgeting\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Which of the following is not true with reference to capital budgeting?\" \/>\n<meta property=\"og:description\" content=\"[amp_mcq option1=&#8221;Capital budgeting is related to asset replacement decisions&#8221; 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