Question

Which one of the following is a capital budgeting decision?

1. Deciding whether or not to open a new store
2. Determining how much inventory to keep on hand
3. Determining how much debt should be borrowed from a particular lender
4. Deciding if stock shares should be repurchased
5. Determining how much cash to keep on hand

Answer 1

Option 1 Deciding whether or not to open a new store

Step-by-step explanation:

Because capital budgeting decision includes all long term investing decisions which has a greater influence over the operations of the organization in long term. Except the decision to open a new store, all the other funding requirements are short term. The decision to open new store will have an influence on the cash flows of operations in long term, so the right option is option 1. The other options which include holding of inventory, debt financing, stock share repurchases and cash management are short term decisions which means these will have influence over the operations of organization for less than a year.