Question

Which among the following factors affects capital budgeting decision?
A. Floatation cost
B. Cash flow of project
C. Control considerations
D. The rate of return
E. The investment criteria involved
Choose the correct answer from the options given below:

• A. B, D and E only
• B. C, A, and B only
• C. D, B and C only
• D. A, B and C only

Hint:

Capital budgeting revolves around expected returns and financial viability, not administrative or incidental costs.

Answer 1

The Correct Option is A

Capital budgeting decisions are long-term investment decisions and are influenced by key financial metrics and project fundamentals. The relevant factors include: \begin{itemize} \item Cash flow of project (B): Since capital budgeting evaluates future returns, cash flow is a primary determinant. \item The rate of return (D): Determines the profitability of the investment. \item The investment criteria involved (E): Includes techniques like NPV, IRR, Payback Period etc., which guide the investment decision. \end{itemize} Floatation cost and control considerations, although relevant in financing and strategic decisions respectively, do not directly affect capital budgeting.