Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process.

Accelerated depreciation has an advantage for profitable firms in that it moves some cash flows forward, thus increasing their present value.

It is extremely difficult to estimate the revenues and costs associated with large, complex projects that take several years to develop.

Any cash flows that can be classified as incremental to a particular project should be reflected in the capital budgeting analysis.

Opportunity costs include those cash inflows that could be generated from assets the firm already owns if those assets are not used for the project being evaluated.

If a firm’s projects differ in risk, then one way of handling this problem is to evaluate each project with the appropriate risk-adjusted discount rate.

Because of improvements in forecasting techniques, estimating the cash flows associated with a project has become the easiest step in the capital budgeting process.

Superior analytical techniques, such as NPV, used in combination with risk-adjusted cost of capital estimates, cannot completely overcome the problem of poor cash flow estimation.

If an investment project would make use of land which the firm currently owns, the project should be charged with the opportunity cost of the land.

The primary goal of capital budgeting is maximizing revenue in the short term.

The income statement method is a capital budgeting technique.

The capital budgeting technique that focuses on the time it takes to recover the initial investment is the net present value (NPV) technique.

The Profitability Index (PI) measure in capital budgeting calculates the ratio of present value of future cash flows to initial investment.

The Net Present Value (NPV) capital budgeting technique considers the time value of money.

The the Internal Rate of Return (IRR) in capital budgeting is the rate at which a project's Net Present Value (NPV) equals zero.

The Payback Period considers the time value of money, while Net Present Value (NPV) does not .

The Payback Period of a project calculates the time required to recover the initial investment.