The correct answer is: B. Capital budgeting decisions are reversible in nature.
Capital budgeting decisions are long-term decisions that involve the commitment of significant resources. Once a capital budgeting decision is made, it is difficult to reverse. This is because the resources that have been committed to the project cannot be easily recovered. For example, if a company decides to build a new factory, it will have to invest a significant amount of money in land, equipment, and labor. If the company later decides that the factory is not profitable, it will be difficult to sell the land and equipment, and the company may have to lay off workers.
The other options are all true.
A. The opportunity cost of an input is considered in capital budgeting. The opportunity cost of an input is the value of the best alternative use of that input. For example, if a company is considering building a new factory, the opportunity cost of the land that will be used for the factory is the value of the land if it were used for another purpose, such as housing or commercial development.
C. Cash flows and accounting profits are different. Cash flows are the actual amount of money that a company receives or pays out during a period of time. Accounting profits are the amount of revenue that a company generates minus the expenses that it incurs during a period of time. Cash flows are more relevant than accounting profits for capital budgeting decisions because they reflect the actual amount of money that a company will have available to invest in new projects.
D. An expansion decision is a capital budgeting decision. An expansion decision is a decision to increase the size or capacity of a company’s operations. Expansion decisions can be very expensive, and they should be carefully evaluated before they are made.