Capital budgeting projects typically assume that all cash flows transpire at the end of the year.The reason for this is that:
A) less tax liability results from this practice.
B) balance sheets are prepared at the end of the year.
C) it simplifies the analysis and the resulting errors are usually small compared with the errors in forecasting future cash flows.
D) most corporations collect their cash at the end of the year.

Question

Quizplus · Accepted Answer

Assuming all cash flows occur at the end of the year simplifies the analysis and reduces the chances for errors in forecasting future cash flows. This is because cash flows are easier to predict for the immediate future as compared to predicting longer-term cash flows. Additionally, assuming end-of-year cash flows is a standard convention used across the industry which makes comparing and evaluating different projects easier.

Capital Budgeting Projects Typically Assume That All Cash Flows Transpire