Question

Which of the following is not true for capital budgeting?

• A. Sunk costs are ignored
• B. Opportunity costs are excluded
• C. Incremental cash flows are considered
• D. Relevant cash flows are considered

Answer 1

The correct option is B Opportunity costs are excluded

Capital budgeting decisions involve huge funds and are long term decisions. As they involve huge costs one wrong decision would have a big effect on the business. They include all the potential expenses/costs. It includes opportunity cost, actual cost, incremental and relevant cash flows. It does not include sunk costs.