In making sound capital budgeting decisions, the principal focus is on:
A) After-tax cash flows only.
B) Timing of the cash flows only.
C) After-tax cash flows and the timing of these cash flows.
D) Accounting-based measures of revenues and expenses.
E) Nonfinancial performance indicators of various projects under consideration.

Question

Quizplus · Accepted Answer

Making sound capital budgeting decisions requires evaluating the after-tax cash flows (i.e., cash inflows minus cash outflows) and the timing of these cash flows (i.e., when the cash flows occur). These two factors are critical in determining the profitability and feasibility of a project. Accounting-based measures of revenues and expenses may be useful in assessing historical performance, but they do not necessarily provide an accurate picture of future performance. Nonfinancial performance indicators may be important in certain situations, but they should not be the principal focus of capital budgeting decisions.

In Making Sound Capital Budgeting Decisions, the Principal Focus Is