The correct answer is D. Rate of Cash Discount.
Capital budgeting is the process of planning and managing a company’s long-term investments. It involves identifying, evaluating, and selecting projects that will help the company achieve its long-term goals.
The four main steps in capital budgeting are:
- Identifying investment opportunities. This involves identifying projects that have the potential to generate positive cash flows for the company.
- Evaluating investment opportunities. This involves assessing the risks and returns of each project and selecting the ones that are most likely to meet the company’s objectives.
- Implementing investment decisions. This involves securing funding for the projects and putting them into action.
- Monitoring investment performance. This involves tracking the progress of the projects and making adjustments as needed.
The time value of money is a concept that is used in capital budgeting to determine the present value of future cash flows. The time value of money recognizes that a dollar today is worth more than a dollar in the future because of the potential to earn interest on that dollar.
The required rate of return is the minimum rate of return that a company expects to earn on its investments. The required rate of return is determined by the company’s cost of capital, which is the weighted average of the costs of its debt and equity financing.
Tax-effect is a consideration that is taken into account in capital budgeting when the project is expected to generate tax savings. Tax savings can be used to reduce the company’s tax liability, which can increase the project’s net present value.
Rate of cash discount is not a consideration that is taken into account in capital budgeting. The rate of cash discount is the discount that a company offers to its customers for paying their bills early. The rate of cash discount does not affect the company’s cash flows, so it is not a factor in capital budgeting.