Any capital budgeting decision should depend solely on a project's forecasted cash flows and the firm's opportunity rate of return. Such a decision should not be affected by managers' tastes, the choice of accounting method, or the profitability of other independent projects.

Question

Quizplus · Accepted Answer

Capital budgeting decisions should be based on objective factors such as cash flows and required rate of return, rather than subjective factors like personal preferences or accounting methods. Profitability of other projects may provide useful information, but should not be the sole determining factor in making a decision.

Any Capital Budgeting Decision Should Depend Solely on a Project's