Question

Which of the following statements is most true in regards to evaluating a capital investment project?

A - We should always develop a project cost and revenue estimates that are our best projection of present costs and future net cash flows.

B - We should develop an estime of our true "cost of capital" to use for discounting purposes.

C - We should seek to fund projects that have a projected positive net present value after accounting for the cost of capital.

D - We understand that there are non-financial factors that may ovverride our financial considerations

E - All of the above are true

Answer 1

E - All of the above are true

All statements from A - D are most true in relation to capital budgeting decision.

(A) True ........ because, future cash flow can only be estimated to the best of our knowledge.

(B) True ....... Because, cost of capital is the discount rate we use to compute the NPV of a project

(C) True ........ Negative NPV destroys wealth

(D) True ......... There will be even non financial and non - quantative issues involved in capital budgeting.

So all statements are true.