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.

Question

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Answer 1

Question

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

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Why does capital budgeting rely on analysis of cash flows rather than on net income? Use an example to explain.

Why does capital budgeting rely on the analysis of cash flows rather than on net income

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Answer 2

Question

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

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Answer 3

Question

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

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Answer 4

Question

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

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Answer 5

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

Answer 6

Chapter 12, Problem 1Q

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.

Expert Solution & Answer

Answer to Problem 1Q

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 of Solution

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.

Answer 7

Chapter 12, Problem 1Q

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 8

Expert Solution & Answer

Answer to Problem 1Q

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

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

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.

Answer 12

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.

Answer 13

Ch. 12 - Prob. 1Q Ch. 12 - Prob. 2Q Ch. 12 - Explain why net operating working capital is...Ch. 12 - Prob. 4Q Ch. 12 - Prob. 5Q Ch. 12 - Prob. 6Q Ch. 12 - Prob. 7Q Ch. 12 - Prob. 8Q Ch. 12 - Prob. 9Q Ch. 12 - If you were the CFO of a company that had to...

Answer to Problem 1Q

Explanation of Solution

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