Question

Capital budgeting decisions are risky because all of the following are true except:

A. The outcome is uncertain.
B. Large amounts of money are usually involved.
C. The investment involves a long-term commitment.
D. The decision could be difficult or impossible to reverse.
E. They rarely produce net cash flows.

Answer 1

Answer:

E. They rarely produce net cash flows.

Explanation:

When a company engages with capital budgeting, it assesses potential and planned investments. The goal of each investment is to produce a difference in cash inflows vs. cash outflows, which is the net cash flow.

Therefore, all investments have a tendency  of producing a cash flow, since that is the reason why companies opt for capital budgeting (investments) in the start.

It is true that the outcome of capital budgeting is uncertain. Also, it requires significant financial resources, and is a long-term decision.