Which of the following statements is most correct?
A) Capital budgeting analysis for expansion and replacement projects is essentially the same because the types of cash flows involved are the same.
B) In estimating net cash flows for the purpose of capital budgeting, interest and dividend payments should not be included since the effects of these items are already included in the weighted average cost of capital.
C) When equipment is sold, companies receive a tax credit as long as the salvage value is less than the initial cost of the equipment.
D) All of the answers above are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

Interest and dividend payments should not be included in estimating net cash flows for capital budgeting because their effects are already considered in the weighted average cost of capital (WACC). Including them again would result in double-counting.

Which of the Following Statements Is Most Correct