What Is the Correct Rule for Capital Budgeting Analysis

Multiple Choice

What is the correct rule for capital budgeting analysis?

A) The interest paid on funds borrowed to finance a project must be included in the project's estimated cash flows.
B) Only incremental cash flows are relevant when making accept/reject decisions.
C) Sunk costs are not included in the annual cash flows, but they must be deducted from the PV of the project's other costs when reaching the accept/reject decision.
D) If a product is competitive with some of the firm's other products, this fact should be incorporated into the estimate of the relevant cash flows. However, if the new product is complementary to some of the firm's other products, this will have no effect on the cash flows used in the analysis.