In theory, capital budgeting decisions should depend solely on forecasted cash flows and the opportunity cost of capital.The decision criterion should not be affected by managers' tastes, choice of accounting method, or the profitability of other independent projects.

Question

Quizplus · Accepted Answer

Capital budgeting decisions should be based on objective data, such as forecasted cash flows and opportunity cost of capital, and should not be influenced by subjective factors like manager's tastes or accounting methods.

In Theory, Capital Budgeting Decisions Should Depend Solely on Forecasted