Final answer:
The option that is not a basic principle of capital budgeting is 'Decisions are based on accounting profit' because capital budgeting decisions should be based on cash flows, which are analyzed on an after-tax basis and consider the timing of the cash flows, while ignoring financing costs.
Step-by-step explanation:
The option that IS NOT a basic principle of capital budgeting is: a) Decisions are based on accounting profit. Capital budgeting principles emphasize that decisions should be made based on cash flows rather than accounting profit. This is because cash flows reflect the actual timing of revenues and expenses, which is crucial for assessing the profitability and risks associated with an investment. In contrast, accounting profits can include non-cash items and may be subject to different accounting practices and estimates, thus not providing the true economic value of a project. Furthermore, capital budgeting relies on the timing of cash flows since receiving cash sooner rather than later is preferred due to the time value of money. Financing costs are typically ignored because capital budgeting focuses on the investment itself and not how it is financed. Lastly, cash flows are considered on an after-tax basis to accurately assess the net benefit to the firm after fulfilling tax obligations.