Question

Which one of the following is a capital budgeting decision?

a) Determining how many shares of stock to issue: True/ False
b) Deciding whether or not to purchase a new machine for the production line: True/ False
c) Deciding how to refinance a debt issue that is maturing: True/ False
d) Determining how much inventory to keep on hand: True/ False
e) Determining how much money should be kept in the checking account: True/ False

Answer 1

The correct answer to the capital budgeting decision is 'Deciding whether or not to purchase a new machine for the production line,' which is a true statement. The other options pertain to financing decisions or operational management and are not considered capital budgeting decisions.

Step-by-step explanation:

Capital budgeting decisions involve the process of making investment choices that affect a company's long-term assets and operations. Here we evaluate which of the following options is a capital budgeting decision:

1. Determining how many shares of stock to issue: False
2. Deciding whether or not to purchase a new machine for the production line: True
3. Deciding how to refinance a debt issue that is maturing: False
4. Determining how much inventory to keep on hand: False
5. Determining how much money should be kept in the checking account: False

Option b) is the correct answer as purchasing a new machine for the production line is a typical example of a capital budgeting decision because it involves making an investment in long-term assets. In contrast, options a), c), d), and e) are related to financing and operational decisions rather than capital budgeting.