Question

Select all the statements that correctly describe the process of capital budgeting: A. the analysis should...

Select all the statements that correctly describe the process of capital budgeting:

A. the analysis should take into account the risk of the project

B. future cash flows rather than future accounting profits should be analysed

C. all sunk costs associated with the project should be included in the analysis

D. decisions should be made based on the company's goal of wealth maximisation

E. the analysis should take into account the time value of money

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Answer #1

The following statements correctly describe the process of capital budgeting.

A. the analysis should take into account the risk of the project

B. future cash flows rather than future accounting profits should be analysed

D. decisions should be made based on the company's goal of wealth maximisation

E. the analysis should take into account the time value of money

Regarding item C, sunk costs have already been incurred. Those costs are not determinants of the future worth of the projects and shall not be included in the analysis.

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