Which of the following is a principle of capital budgeting which states that the calculations of cash flows should remain independent of financing?
A) Generally accepted accounting principle
B) Financing principle
C) Separation principle
D) WACC principle

Question

Quizplus · Accepted Answer

The separation principle states that capital budgeting decisions should be based solely on the expected future cash flows of the project and should not consider the method of financing. This principle ensures that the project's profitability is evaluated solely based on the cash flows generated by the project itself, not the financing used to fund it. Option A refers to accounting standards and is not specific to capital budgeting, Option B is incorrect as there is no such principle in capital budgeting, and Option D refers to the weighted average cost of capital, which considers financing costs.

Which of the Following Is a Principle of Capital Budgeting