Question

Evaluation of capital budgeting proposals is based on cash flows because_____________.

• A. Cash rows are easy to calculate
• B. Cash flows are suggested by SEBI
• C. Cash is more important than profit
• D. None of the above

Answer 1

Answer: (C)

Cash is more important than profit

Capital budgeting is based on cash flows because there is discounting and other factors used which can be done only on cash. Moreover, cash can be spent and not profit. Cash is more important than profit as the company has to focus on many costs. As in the long run the company will succeed if it focuses mote on cash flow statement.