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Difference between accounting income and cash flow

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Unit 3 expands on how a firm's primary objective is to maximize its shareholders' value by investing in projects that earn more than their cost of capital. In this unit, you will calculate the weighted average cost of capital, forecast net cash flows, and project option values. By applying budgeting concepts to case studies, you will learn more about the decision-making process as it applies to financial management.Description
For this assignment, you will provide responses to questions regarding the differences between cash flow, accounting income, and how these two areas ties into capital budgets.

1. In regard to capital budgeting, why do we tend to focus on cash flows rather than net income?

2. Explain the difference between accounting income and cash flow.

3. In a capital budgeting analysis, explain why opportunity costs and external factors are included in the analysis but sunk costs are not.

4. In a capital budgeting analysis, why are interest charges not deducted when a project's cash flows are calculated?

5. Is it worth the effort to estimate daily project cash flows?Would doing so be helpful in the investment analysis?How would the results be negatively or positively affected?

Reference no: EM132907775

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