Question

What consequences might occur if a financial manager believes that accounting and finance are the same thing?  
Provide a detailed example to support your thoughts.

Answer 1

In case a financial manager believes that accounting and finance are same thing, then appraisal of projects can be wrong

For example, a project with high initial investment and accelerated depreciation may have negative accounting income and accounting metrics may not favor the project.

But if we analyse the financial cash flows, then these would be positive and thus would have positive NPV even if the accounting return is not favorable. Thus such a confusion may result in financially favorable projects also being rejected.