Since the focus of capital budgeting is on cash flows rather than on net income,changes in noncash balance sheet accounts such as inventory are not relevant in a capital budgeting analysis.

Question

Quizplus · Accepted Answer

Changes in noncash balance sheet accounts such as inventory can affect cash flows and must be considered in capital budgeting analysis. This is because changes in inventory levels can affect the cash outflows and inflows in a project, such as changes in working capital requirements or carrying costs.

Since the Focus of Capital Budgeting Is on Cash Flows