two cardinal rules that financial analysts should follow to avoid capital budgeting errors are: (1) in the NPV equation, the numerator should use income calculated in accordance with generally accepted accounting principles, and (2) all incremental cash flows should be considered when making accept/reject decisions.

Question

Quizplus · Accepted Answer

The first rule is incorrect; the numerator in the NPV equation should use cash flows, not income calculated according to GAAP. The second rule is correct as all incremental cash flows should be considered.

Two Cardinal Rules That Financial Analysts Should Follow to Avoid