Final answer:
Capital budgeting is a process for evaluating investment projects to decide if they should be funded or not, based on expected returns. It involves choices around the best ways to raise financial capital, such as issuing bonds or stocks, or borrowing from a bank.
Step-by-step explanation:
The correct option is C:
Capital budgeting is used to determine the worthiness of investment projects within a company. The primary goal of capital budgeting is to assess whether to fund or kill projects based on their expected cash flows and profitability to ensure the best allocation of resources. Companies must navigate how to best access financial capital, which can be done through borrowing from a bank, issuing bonds, reinvesting profits, or selling stocks; each choice comes with its advantages and implications.
When a firm borrows from a bank or issues bonds, it is obligated to make regular interest payments, which can become a burden if the firm's income fluctuates. Conversely, if the firm opts to borrow money, it retains full control over its operations without shareholder influence. Conversely, selling stocks means distributing company ownership to the public, which necessitates accountability to a board of directors and the shareholders but doesn't commit the firm to regular interest payments. The correct answer to the given question would be c. if projects should be funded or killed, as capital budgeting is all about evaluating and selecting the investment projects that will yield the most benefit to the firm over time.