BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

Operating cash flows rather than accounting income are listed in Table 12.1. Why do we focus on cash flows as opposed to net income in capital budgeting?

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Answer

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation
  • The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
  • The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.
Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What is the purpose of the Americans with Disabilities Act?

Foundations of Business (MindTap Course List)

How are inflation and unemployment related in the short run?

Principles of Microeconomics (MindTap Course List)

How are inflation and unemployment related in the short run?

Essentials of Economics (MindTap Course List)

If the variable cost per unit goes down,

Managerial Accounting: The Cornerstone of Business Decision-Making

Comprehensive/Spreadsheet Problem 16-15 FORECASTING FINANCIAL STATEMENTS Use a spreadsheet model to forecast th...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Find all the answers to your study problems with bartleby.
Textbook solutions plus Q&A. Get As ASAP arrow_forward