Answer:
True.
Step-by-step explanation:
Capital budgeting is the process whereby a business carries out an evaluation of potential major projects or investments. Examples of these investments and projects may include construction of a new plant or a big investment in an external venture.
A capital budget is risky because it is a plan for investing in long-term assets such as buildings and machinery, therefore, risk is inevitable.
The various risks include:
- Investment of large amounts of cash.
- Cash flows not being paid in time as agreed.
- The risk of the investee company collapsing.
- The management sinking the invested funds in risky projects.
- Decisions could be difficult or impossible to reverse.