Which of the following statements is FALSE? A)The ultimate goal in capital budgeting is to determine the effect of the decision to take a particular project on the firm's cash flows. B)To the extent that overhead costs are fixed and will be incurred in any case,they are incremental to the project and should be included in the capital budgeting analysis. C)Unlevered Net Income = (Revenue - Costs - Depreciation)× (1 - τ_c). D)Earnings are not cash flows.

Question

Quizplus · Accepted Answer

The statement B is false because overhead costs that are fixed and will be incurred regardless of whether a project is undertaken or not are not incremental to the project. Incremental cash flows, which are relevant for capital budgeting analysis, are those cash flows that will only occur if the project is accepted. Fixed overhead costs that do not change with the decision to undertake a project should not be included in the project's cash flow analysis.

Which of the Following Statements Is FALSE