Consideration of risk is essential to the capital budgeting process. Which of the following statements is true?

A) Recognizing risk is a major step toward bringing theory in line with the real world.
B) Business managers do recognize risk, but they do it through judgments based on the results of analyses when decisions are finally made.
C) Although we are unable to put the idea that cash flows are subject to probability distributions into our analysis, better capital budget decisions can be made when the relevance of risk is acknowledged.
D) All of the above

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Naima Mirza · Accepted Answer

Final Answer : D, Explanation :  All of the statements are true. Risk is an essential consideration in capital budgeting because it helps align theory with the real world, business managers do use judgments based on analyses to recognize risk, and although cash flows cannot be precisely predicted, acknowledging the relevance of risk can lead to better capital budget decisions.

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