Question

Should a company focus on cash flows or accounting profits when making a capital expenditure decision?

Answer 1

Answer:

Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The two most common techniques involved in discounting cash flows are net present value and internal rate of return.

While the discounted cash flow models are the ideal, I would also want to forecast or project the impact on the company's future financial statements. Therefore, I would also calculate and understand the effect on the accounting profits resulting from the capital expenditure.

Answer 2

Answer:

yes it should because it will allow the growth of the business