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Why does capital budgeting rely on analysis of cash flows rather than on net income?
Wiki User
∙ 11y ago
Cash flow rather than net income is used in capital budgeting analysis because the primary concern is with the amount of actual dollars generated. For example, depreciation is subtracted out in arriving at net income, but this non-cash deduction should be added back in to determine cash flow or actual dollars generated.
Wiki User
∙ 11y ago
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Why does capital budgeting rely on analysis of cash flows rather that on net income?
Accounting assigns the cost of an asset to those periods during which the asset provides economic benefit to the firm. However, to analyze a capital investment proposal, we often have to be able to translate the accounting profit figures into actual cash flows, in order that we can apply "time value of money" techniques to the timing of these cash flows.
Can Present value be added to determine the value of capital budgeting project?
As capital budgeting involve decision making which is for long term time period that's why time value of money imprecations are included while calculating capital budget and that's why present value of actual cash flows are used rather the real value of cash flows.
Do have financial modeling experience Explain?
Financial modelling is the use of financial mathematics for forecasting, capital budgeting, and scenario planning. It is an experience that is learnt well through job practice rather than in School.
Is budgeting a waste of time?
Budgeting is not waste of time as long as it is performed after taking into account unexpected events,changes,and uncertainties. Rather budgeting is a very effective way of efficient use of resources.if businesses fail to budget, they can't have a clue how much resiursec are available and where the business has to spend first(prioritising your expenses/payouts) budgeting is all about planning and implementation,and if you fail to plan,you plan to fail.
What is the meaning of deffered income?
When you have earned income but will get paid in the future rather than upon earning it.
Why does capital budgeting rely on analysis of cash flows rather that on net income?
Accounting assigns the cost of an asset to those periods during which the asset provides economic benefit to the firm. However, to analyze a capital investment proposal, we often have to be able to translate the accounting profit figures into actual cash flows, in order that we can apply "time value of money" techniques to the timing of these cash flows.
Which capital budgeting method uses accrual accounting rather than net cash flowsl as a basis for calculations?
apr
What do capital appreciation funds funds do?
Capital appreciation funds seek to maximize capital gains, rather than current income.
Can Present value be added to determine the value of capital budgeting project?
As capital budgeting involve decision making which is for long term time period that's why time value of money imprecations are included while calculating capital budget and that's why present value of actual cash flows are used rather the real value of cash flows.
Do withdrawls go on income statement?
owners withdrawal are not part of income statement as neither it is income or expense of business rather it is reduction of owner capital from business that’s why it is shown under liability side as a reduction of owner capital in balance sheet.
What do Aggressive growth funds do?
Aggressive growth funds seek to maximize capital gains, rather than current income
Do have financial modeling experience Explain?
Financial modelling is the use of financial mathematics for forecasting, capital budgeting, and scenario planning. It is an experience that is learnt well through job practice rather than in School.
Are withdrawls listed on the income statement?
Withdrawals are those amount which taken out from business by owners of business and it is not part of income statement rather it is shown as deduction from owners capital in balance sheet.
Does drawings go onto the income statement?
Drawings is a contra account to owner’s capital which is used for owners withdrawals from business so it is not part of income statement rather it is part of balance sheet and shown as a deduction from owner’s capital.
How is result based budgeting applicable in Zimbabwe?
With results based budgeting in Zimbabwe, funds are allocated based on defined progressive steps. Rather than have funds available not tracked to measurable results, results based budgeting provides incentive to perform.
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What are the disadvantages of Activity Based Budgeting?
Time consuming to set up - have to understand the activities that drives the budgetCostly - buying, implementing and maintaining an activity based systemManagers may be overwhelmed with information - may be demotivating, rather than looking at the bigger pictureMore effective methods such as, zero based budgeting and continuous budgeting
