In Theory, Capital Budgeting Decisions Should Depend Solely on Forecasted

question 4

True/False

In theory, capital budgeting decisions should depend solely on forecasted cash flows and the opportunity cost of capital.The decision criterion should not be affected by managers' tastes, choice of accounting method, or the profitability of other independent projects.

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Definitions:

Reported Income

The income that a company officially reports, usually on its income statement, reflecting the financial performance over a specific period.

Return on Assets (ROA)

A financial ratio that indicates how profitable a company is relative to its total assets, calculated as net income divided by total assets.

Return on Common Equity

A financial ratio indicating the amount of net income returned as a percentage of shareholders equity, measuring a company's profitability in generating profits from its equity financing.

Long-term Debt

Borrowings and financial obligations that are due for repayment beyond the period of one year.