The most difficult part of capital budgeting is deciding how to estimate ________.
A) the amount of net working capital
B) the internal rate of return
C) the cash flows and cost of capital
D) the free cash flows

Question

Quizplus · Accepted Answer

Estimating the cash flows and cost of capital is the most difficult part of capital budgeting because it involves predicting future cash flows and determining the appropriate discount rate to use in order to calculate the net present value of the investment. These estimates are subject to uncertainty and error, which can have a significant impact on the outcome of the investment decision. Net working capital and free cash flows are also important considerations in capital budgeting, but they are generally easier to estimate than cash flows and cost of capital. Internal rate of return is a metric that is calculated based on the estimated cash flows and cost of capital, so it is also dependent on accurate estimation of these factors.

The Most Difficult Part of Capital Budgeting Is Deciding How