Select the incorrect statement regarding a typical capital budgeting process. A.

Question

Select the incorrect statement regarding a typical capital budgeting process.

A. The process typically begins with the identification of the project being considered.

B. Cash flow estimation, risk assessment, and selecting appropriate discount rates (cost of capital estimates) are important steps in the process.

C. The NPV rule is considered as the best tool for numerical evaluation of the project desirability, but IRR and some other tools are also widely used.

D. Nonfinancial factors (like real options) are difficult to evaluate, so they are almost always ignored in the process.

Explanation / Answer

Nonfinancial factors (like real options) are difficult to evaluate, so they are almost always ignored in the process. This is incorrect as these nonfinancial factors are not almost always ignored in the process.

Other statements are true.

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