Question

How is cost of capital relevant to capital budgeting decision

Answer 1

Answer:

Importance of Cost of Capital

It helps in evaluating the investment options, by converting the future cash flows of the investment avenues into present value by discounting it. It is helpful in capital budgeting decisions regarding the sources of finance used by the company.....

Answer 2

The cost of capital relevant to capital budgeting decision. The facts regarding this are described below:

- Long-term capital expenditures are expected to be received beyond a year in terms of cash flow are called capital budgeting which is a decision making process in a company plans.

- Here ,welfare investment is included in the investment decisions.

- Future cash flows of the investment avenues can be converted into present value by discounting it and it can only be possible with the help in evaluating the investment option.

- The company uses the source of finances and according to that the decisions are taken with the help of capital budgeting decisions.