Consider the following statements about the factors affecting capital…

Consider the following statements about the factors affecting capital budgeting decisions:

(A) Depending upon its returns, each project available to a business is either selected or rejected.

(B) Capital budgeting techniques are applied to each proposal before selecting a particular project.

(C) The decision to invest in a project involves calculations regarding the amount of investment, interest rate, cash flows and dividend payout.

(D) A company taking an investment decision involving a huge amount expects to generate some cash flows over a period.

Which of the statements given above are correct?

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A), (B) and (D) only

(A) Depending upon its returns, each project available to a business is either selected or rejected. — Correct. A business often has many projects to choose from. Each one is evaluated, and depending upon its returns it is selected or rejected.

(B) Capital budgeting techniques are applied to each proposal before selecting a particular project. — Correct. The methods used to evaluate investment proposals are called capital budgeting techniques. They are applied to each proposal before a project is chosen.

(C) The decision to invest in a project involves calculations regarding the amount of investment, interest rate, cash flows and dividend payout. — Incorrect. The calculations cover the amount of investment, interest rate, cash flows and rate of return. Dividend payout is part of the dividend decision, which deals with how much profit goes to shareholders.

(D) A company taking an investment decision involving a huge amount expects to generate some cash flows over a period. — Correct. A big investment is made to earn cash flows over a period.

NCERT (2026-27 Edition): “Factors affecting Capital Budgeting Decision A number of projects are often available to a business to invest in. But each project has to be evaluated carefully and, depending upon the returns, a particular project is either selected or rejected. If there is only one project, its viability in terms of the rate of return, viz., investment and its comparability with the industry’s average is seen. There are certain factors which affect capital budgeting decisions.
(a) Cash flows of the project: When a company takes an investment decision involving huge amount it expects to generate some cash flows over a period. These cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analysed before considering a capital budgeting decision.”

“Factors affecting Capital Budgeting Decision … (c) The investment criteria involved: The decision to invest in a particular project involves a number of calculations regarding the amount of investment, interest rate, cash flows and rate of return. There are different techniques to evaluate investment proposals which are known as capital budgeting techniques. These techniques are applied to each proposal before selecting a particular project.”