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:

Return on Investment

A financial metric evaluating the profitability or effectiveness of an investment, calculated by dividing net profit by the investment's cost.

Common Fixed Costs

Costs that do not change with the level of production or sales and are shared across different products or departments within a company.

Decision Making

The process of choosing among alternative courses of action or solutions to a problem in order to achieve a desired outcome.

Outside Supplier

An outside supplier is an external entity that provides goods or services to a company, typically not affiliated with the company’s internal supply chain.