Which of the following is not true with reference capital budgeting?

April 16, 2024 by rawan239

premium. The risk premium is the additional return that investors demand for taking on risk. The minimum required return does not include a risk premium because it is the rate of return that a company must earn on its investments in order to break even.

Here is a brief explanation of each option:

• A. Capital budgeting is related to asset replacement decisions. This is true because capital budgeting is the process of planning and evaluating long-term investments, which includes asset replacement decisions.
• B. Cost of capital is equal to minimum required return. This is not true because the cost of capital includes a risk premium, while the minimum required return does not.
• C. Existing investment in a project is not treated as sunk cost. This is true because sunk costs are costs that have already been incurred and cannot be recovered. Existing investment in a project is not a sunk cost because it can be recovered if the project is not successful.
• D. Timing of cash flows is relevant. This is true because the timing of cash flows affects the present value of a project. A project with earlier cash flows is worth more than a project with later cash flows.