Which of the following statements is FALSE? A. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. B. Many projects use a resource that the company already owns. C. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings. D. When evaluating a capital budgeting decision, we generally include interest expense.

Question

Adelaide Patton

Business

25 July, 18:53

Which of the following statements is FALSE? A. Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project. B. Many projects use a resource that the company already owns. C. As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings. D. When evaluating a capital budgeting decision, we generally include interest expense.

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Answers (1)

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Shayna · Answer 1

The statement that is false here is D).

Explanation:

Capital budgeting is a process which is used by many organizations for evaluating their projects and investments. In this a project's cash inflow and outflow are analyzed to determine whether return that is expected to be earned on project is more than set benchmark or not.

During this process, only operating expenses are taken in to consideration, not the interest expenses because interest expenses are covered by the cost of capital, for the purpose of discounting future cash flow.