True or False: Capital budgeting predictions must consider factors such as changing consumer preferences, competition, and government regulations.

Capital budgeting is a vital process in which businesses evaluate potential major investments or expenditures. The correct answer emphasizes the necessity of considering various external and internal factors that can influence the outcomes of these investments.

Changing consumer preferences are critical, as they directly affect demand for products or services. If a business is planning to invest in new technology or a product line, understanding shifts in what consumers want can significantly impact the success of that investment.

Competition plays a substantial role as well. Analyzing competitors helps a firm gauge the potential market size and pricing strategies, which are essential for forecasting revenue and return on investment accurately.

Government regulations should also be taken into account. These regulations can affect costs, operational processes, and the feasibility of certain investments. For instance, new regulations may require additional investment in compliance or alter the market dynamics that a business operates within.

Overall, effective capital budgeting requires a comprehensive approach that includes these considerations to ensure that predictions about future cash flows and profitability are realistic and informed.