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Most errors in capital budgeting

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1. Lexi, Lauren and Madeleine are having a discussion. "Capital budgeting is designed to select projects that cost the least," said Lexi. "No", said Lauren, "capital budgeting is about lowering operating expenses to enable efficiency." "You are both wrong," said Madeleine. "Capital budgeting is about - practically speaking - allowing mangers to keep their jobs." What do you think? Is Lexi right? Is Lauren right? Is Madeleine right? Are none of them correct? Support your answer with examples, as appropriate.

2. Lexi, Lauren and Madeleine continued their discussion. "Most errors in capital budgeting occur when adjusting for the time value of money," said Lexi. "No", said Lauren, "most errors occur when one is interpreting results." "Again, you are both wrong," said Madeleine. "Most errors occur because of one errs in estimating the relevant cash flows." What do you think? Is Lexi right? Is Lauren right? Is Madeleine right? Are none of them correct? Support your answer with examples, as appropriate.

3. Lexi, Lauren and Madeleine wrapped up their discussion with a look at the steps involved with capital budgeting. "The steps are identifying opportunities, evaluating opportunities, implementing the project and conducting a post-audit," said Lexi. "No", said Lauren, "you missed the pre-audit. Capital budgeting includes a pre-audit." "Once more, you are both wrong," said Madeleine. "What about pre-identification of post-audit opportunities?" Is Lexi right? Is Lauren right? Is Madeleine right? Are none of them correct? Support your answer with examples, as appropriate.

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Reference no: EM132577562

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