“A capital budgeting decision is c | Class 12 Business Studies Chapter Financial Management, Financial Management NCERT Solutions

Q3.

“A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give reasons for your answer?

Yes, a capital budgeting decision is capable of changing the financial fortunes of a business. Investment decision involves careful selection of assets in which funds are to be invested. Decisions relating to investment in fixed assets are known as capital budgeting decision, whereas, those concerning investment in current assets are called working capital decisions.

A business needs to invest funds for setting up new business, for expansion and modernization. Investment decision is taken after careful scrutiny of available alternatives in terms of costs involved and expected return.

These decisions are very crucial for any business. Earning capacity of the fixed assets of a firm, profitability and competitiveness, all are affected by the capital budgeting decisions. Moreover, these decisions normally involve huge amount of investment and are irreversible, except at a huge cost.

Following are the factors that highlight the importance of capital budgeting decisions.

  1. These are long-term decisions and can be reserved only at huge costs.
  2. These generally involve commitment of huge funds.
  3. These have a significant effect on the profitability and future of the business.

Thus, once these decisions are taken, it is impossible for a firm to undo these decisions and certainly a bad capital budgeting decision normally has the capacity to severely damage the financial fortune of a business.

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Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

  • Read the question carefully and focus on the core concept being asked.
  • Reference examples and data from the chapter when answering questions about Financial Management.
  • Review previous year question papers to get an idea of how such questions may be framed in exams.
  • Practice answering questions within the time limit to improve your speed and accuracy.
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Important Questions & Answers

Why is this answer important for exams?

This question is important because it tests key concepts from the NCERT syllabus and is frequently asked in CBSE exams.

Which NCERT concept is used in this question?

This question is based on core NCERT concepts explained in the chapter and should be revised thoroughly before exams.

What common mistakes should be avoided in this question?

Students often lose marks by skipping steps, writing incomplete explanations, or misunderstanding keywords used in the question.

What is the correct answer to: “A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give reasons for your answer??

Yes, a capital budgeting decision is capable of changing the financial fortunes of a business. Investment decision involves careful selection of assets in which funds are to be invested. Decisions relating to investment ...

How do you solve “A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give reasons for your answer? step by step?

Step-by-step explanation:
• Yes, a capital budgeting decision is capable of changing the financial fortunes of a business
• Investment decision involves careful selection of assets in which funds are to be invested
• Decisions relating to investment in fixed assets are known as capital budgeting decision, whereas, those concerning investment in current assets are called working capital decisions
•
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