Asked by Juyee Kamat on May 26, 2024
Verified
Which of the following statements regarding capital budgeting decision errors is/are true?
A) The consistent use of post-audits precludes an organisation from rejecting a desirable capital budgeting project.
B) The post-audit helps to detect errors that occur when an undesirable capital budgeting project is accepted.
C) The use of post-audits will not detect errors that occur when a desirable capital budgeting project is rejected.
D) The post-audit helps to detect errors that occur when an undesirable capital budgeting project is accepted AND the use of post-audits will not detect errors that occur when a desirable capital budgeting project is rejected.
Post-audits
Evaluations conducted after a project or investment has been completed to assess its success and learn from its outcomes.
Capital Budgeting Decision
The process of evaluating and selecting long-term investments that are in line with the firm's goal of value maximization.
- Comprehend the function and implementation of post-audit processes in capital budgeting.
Verified Answer
BR
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Final Answer :
D
Explanation :
Post-audits can help detect errors that occur when an undesirable project is accepted, but they cannot guarantee that every bad project will be rejected. Similarly, post-audits cannot detect errors that occur when a desirable project is rejected, but they can help ensure that accepted projects are properly evaluated and executed. Therefore, the use of post-audits is important for mitigating capital budgeting decision errors.
Learning Objectives
- Comprehend the function and implementation of post-audit processes in capital budgeting.
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