Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?
A)Deducting interest expense from income and also including it in the discount rate would result in double counting.
B)Cash flows reflect the timing of benefits and costs more accurately than accounting profits.
C)Cash flows are more stable than accounting profits.
D)Both A and B.

Question

Quizplus · Accepted Answer

A) Deducting interest expense from income and also including it in the discount rate would result in double counting.
B) Cash flows reflect the timing of benefits and costs more accurately than accounting profits. 
Therefore, both A and B are valid reasons why cash flows are utilized rather than accounting profits when evaluating capital projects.

Which of the Following Best Describes Why Cash Flows Are