Which of the following statements is false?

Correct option is B

The correct answer is (b) Capital budgeting decisions are reversible in nature.
Capital budgeting involves the commitment of large funds to long-term assets. These decisions are generally irreversible because the specialized nature of the assets makes them difficult to sell without significant financial loss. Once a factory is built or a specific machine is installed, reversing the decision usually involves heavy "sunk costs" and a low resale value.
INFORMATION BOOSTER
· Irreversibility: High abandonment costs and the absence of a secondary market for specialized equipment make these decisions permanent.
· Opportunity Cost: Choosing one project means sacrificing the returns of another; this must be factored into the Net Present Value (NPV).
· Cash Flow vs. Profit: Capital budgeting relies on cash flows (actual money in/out) rather than accounting profits, which include non-cash items like depreciation.
· Risk and Uncertainty: Since the benefits accrue over many years, these decisions carry a high degree of risk compared to short-term operational choices.
ADDITIONAL KNOWLEDGE
· (a) is true because the value of the next best alternative must be subtracted from a project’s potential gains.
· (c) is true as accounting profit is subject to accrual concepts, while capital budgeting requires liquid cash for reinvestment.
· (d) is true because any long-term investment aimed at increasing production capacity falls under capital budgeting.