Which of the Following Rules Is CORRECT for Capital Budgeting

question 21

Multiple Choice

Which of the following rules is CORRECT for capital budgeting analysis?

• A) The interest paid on funds borrowed to finance a project must be included in estimates of the project's cash flows.
• B) Only incremental cash flows, which are the cash flows that would result if a project is accepted, are relevant when making accept/reject decisions.
• C) Sunk costs are not included in the annual cash flows, but they must be deducted from the PV of the project's other costs when reaching the accept/reject decision.
• D) A proposed project's estimated net income as determined by the firm's accountants, using generally accepted accounting principles (GAAP), is discounted at the WACC, and if the PV of this income stream exceeds the project's cost, the project should be accepted.

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Definitions:

Behavioral Genetics

The study of how genetic and environmental factors influence behaviors, traits, and abilities.

Biological Phenomena

Natural processes and functions observed in living organisms, including growth, reproduction, metabolism, and adaptation.

Psychological Phenomena

Events, processes, or behaviors that stem from the mind and emotions, encompassing a wide range of human activities and experiences.

Genotype

The genetic makeup of an organism, consisting of the DNA sequences that code for the organism's traits.