Which of the Following Statements Represents Good Advice Prior to Making

question 128

Multiple Choice

Which of the following statements represents good advice prior to making capital expenditures?

• A) Capital expenditures represent borrowed funds that must be repaid in one year or less. It is important to seek the advice of your accountant prior to committing.
• B) Capital expenditures represent investment in inventories and expendable assets that the firm will use in one year or less. It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
• C) Most firms do not value capital expenditures on their balance sheets, so it is important to stay abreast of the market value of these assets at all times, in case you want to sell them.
• D) Capital expenditures are major investments, meaning they require large sums of funds. Companies should weigh all possible options before committing available resources to projects that take significant amounts of funds and extended time.

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Definitions:

Translation Exposure

The risk that a company's financial statements can be affected by changes in exchange rates when they have operations in foreign currencies.

Depreciation

The accounting method of allocating the cost of a tangible or physical asset over its useful life.

Financial Statements

These are formal records of the financial activities of a business, person, or other entity, providing an overview of a financial position at a point in time.

Remitting Profits

The process of sending back earnings to a company's home country or investors.