The two cardinal rules which financial analysts follow to avoid capital budgeting errors are: (1) capital budgeting decisions must be based on accounting income, and (2) only incremental cash flows are relevant to accept/reject decisions.

Question

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The rules should be stated as (1) capital budgeting decisions must be based on cash flows, not accounting income, and (2) only incremental cash flows are relevant to accept/reject decisions.

The Two Cardinal Rules Which Financial Analysts Follow to Avoid