Making Capital-Budgeting Decisions
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Why do we focus on cash flows rather than accounting profits in making our capital-budgeting decisions? Why are we interested only in incremental cash flows rather than total cash flows?
In computing the cost of capital, which sources of capital should we consider?
Explain how industry norms might be used by the financial manager in the design of the company's financing mix.
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The solution discusses why do we focus on cash flows rather than accounting profits in making our capital-budgeting decisions.
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Why do we focus on cash flows rather than accounting profits in making our capital-budgeting decisions? Why are we interested only in incremental cash flows rather than total cash flows?
We focus on cash flows rather than accounting profits because profits are in effect theoretical figures, whereas cash flows are tangible, hence more objective and subject to analysis. Moreover a dollar of ...
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