The Reason Cash Flow Is Used in Capital Budgeting Is

question 110

Multiple Choice

The reason cash flow is used in capital budgeting is because

• A) cash rather than income is used to purchase new machines.
• B) cash outlays need to be evaluated in terms of the present value of the resultant cash inflows.
• C) to ignore the tax shield provided from depreciation would ignore the cash flow provided by the machine, which should be reinvested to replace older machines.
• D) All of these options are true.

---

Definitions:

Inventory

Materials and goods a business holds for the ultimate goal of resale or processing in the manufacturing process.

Purchase

Acquiring goods or services in exchange for money or other compensation.

Adjusted Trial Balance

A list of all accounts and their balances after adjustments are made for accruals, deferrals, and estimated items.

Adjusting Journal Entries

Entries made at the end of an accounting period to allocate income and expenses to the period in which they actually occurred.