Explore BrainMass

Explore BrainMass

    Making Capital-Budgeting Decisions

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com June 3, 2020, 11:41 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/making-capital-budgeting-decisions-291999

    Solution Preview

    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 ...

    Solution Summary

    The solution discusses why do we focus on cash flows rather than accounting profits in making our capital-budgeting decisions.

    $2.19

    ADVERTISEMENT