QUESTION 3

Which of the following statements on capital budgeting is FALSE?

Since depreciation is a non-cash expense, it needs to be added back to EBIT to compute

cash flows. A reason for calculating EBIT in a capital budgeting analysis is to compute the tax outflow caused by the project.

If a project is housed in a facility owned by the firm, then the opportunity cost of the facility can be ignored in the capital budgeting analysis.

Most investment projects require a net working capital investment to ensure that they can be smoothly executed.