The focus in capital budgeting should be on ________.
A) favorable and unfavorable variance
B) expenses under accrual accounting
C) expected future cash flows that differ between alternatives
D) allocation of overheads

Question

Quizplus · Accepted Answer

The focus in capital budgeting should be on expected future cash flows that differ between alternatives. This is because the objective of capital budgeting is to select the project or investment that will generate the highest net present value (NPV). NPV is calculated by discounting the expected future cash flows at a required rate of return, which takes into account the time value of money and the riskiness of the investment. Therefore, the focus in capital budgeting should be on evaluating and comparing the expected future cash flows of different alternatives, rather than just looking at expenses or overheads. Variance analysis is a tool for analyzing and controlling costs, but it is not directly related to capital budgeting. Similarly, accrual accounting is a method of recognizing revenues and expenses, but it does not provide information about cash flows.

The Focus in Capital Budgeting Should Be on ________