The correct answer is: B. Incremental Cash Flows
Capital budgeting is the process of planning and managing a company’s long-term investments. It involves identifying, evaluating, and selecting the best projects to invest in. The goal of capital budgeting is to maximize the company’s value by making investments that will generate the highest returns.
Incremental cash flows are the difference between the cash flows that a project will generate and the cash flows that would have been generated if the project had not been undertaken. Incremental cash flows are the most important factor in capital budgeting decisions because they measure the actual benefits that a project will provide.
A. Incremental Profit is not the correct answer because it does not take into account the time value of money. Profit is a measure of a company’s financial performance over a period of time, but it does not reflect the actual cash that the company has received or paid out.
C. Incremental Assets is not the correct answer because it does not take into account the costs of the project. Assets are the resources that a company owns, but they do not generate cash flows.
D. Incremental Capital is not the correct answer because it does not take into account the benefits of the project. Capital is the money that a company invests in its assets, but it does not generate cash flows.