Capital budgeting includes the evaluation of which of the following?

• A. Preparation of annual financial statements
• B. Daily operating expenses
• C. Long-term investment projects such as purchasing new equipment
• D. Short-term cash flow management

Answer: (C)

Verified step by step guidance

1. Understand the concept of capital budgeting: Capital budgeting is the process of evaluating and selecting long-term investment projects that are expected to generate returns over a period of time. It focuses on decisions related to significant expenditures, such as purchasing new equipment, constructing facilities, or launching new products.
2. Differentiate between long-term and short-term financial decisions: Capital budgeting deals specifically with long-term investment projects, whereas short-term decisions involve daily operating expenses or cash flow management.
3. Identify the scope of capital budgeting: It does not include preparation of annual financial statements or short-term cash flow management. These are part of financial reporting and working capital management, respectively.
4. Recognize the correct focus of capital budgeting: The evaluation of long-term investment projects, such as purchasing new equipment, is the primary focus of capital budgeting.
5. Apply this understanding to the problem: Based on the explanation, the correct answer is 'Long-term investment projects such as purchasing new equipment,' as it aligns with the purpose and scope of capital budgeting.