Question

Which of the following is not followed while taking Capital budgeting decisions?

• A. Cash flows be calculated on incremental terms
• B. All costs and benefits are measured on cash basis
• C. All accrued costs and revenues be incorporated
• D. All benefits are measured on after-tax basis

Answer 1

The correct option is C All accrued costs and revenues be incorporated

Capital budgeting is evaluating all the big expenses and cost that the business will incur on a project. They only take into consideration all the cash expenses and revenues and not accrued cost and revenues.

In capital budgeting cash is more important than profit. All benefits are measured on cash basis, tax is taken into consideration to understand the tax benefit.