Why does capital budgeting rely on analysis of cash flows rather than on net income? Capital budgeting heavily relies on the analysis of cash flows rather than net income. This is because cash flow provides a more accurate picture of a project's ability to generate cash and meet its financial obligations. Unlike net income, which can be manipulated by accounting methods and includes non-cash items such as depreciation, cash flows represent actual cash inflows and outflows of a project. Therefore, analyzing cash flows is crucial for making informed investment decisions and ensuring the long-term financial success of a project.
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