Capital budgeting includes the evaluation of which of the following? A. Size of future cash flows onlyB. Size and timing of future cash flows onlyC. Timing and risk of future cash flows onlyD. Risk and size of future cash flows onlyE. Size, timing, and risk of future cash flows

Question

Jadyn Suarez

Business

28 August, 04:43

Capital budgeting includes the evaluation of which of the following? A. Size of future cash flows onlyB. Size and timing of future cash flows onlyC. Timing and risk of future cash flows onlyD. Risk and size of future cash flows onlyE. Size, timing, and risk of future cash flows

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Answers (1)

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Weston Bradshaw · Answer 1

The answer is E. Size, timing, and risk of future cash flows

Explanation:

- In capital budgeting, both size, timing and risk of future cash flows are of importance in evaluating an investment/projects 's profitability.

- For size of the future cash flow: it is important because it is necessary to estimate how much cash flow incremental an investment/project may bring about.

- For timing of the cash flow: because money has time value, that is one dollar today is not worth the same as one dollar next month, timing of cash flow needs to be projected so that the net present value of the project can be calculated accurately.

- For risk of future cash flows: It is used to decide the required rate of return of an investment/project. The higher the risk, the higher the required rate of return an investment has to generate.