Asked by Veronika Khvan on Jun 28, 2024
Verified
According to the incremental cash flow principle, a firm should:
A) include variable costs and fixed costs.
B) exclude variable costs and fixed costs in the project's cash flows.
C) include variable costs and exclude fixed costs in the project's cash flows.
D) include sunk costs in the project's cash flows.
E) exclude opportunity costs in the project's cash flows.
Incremental Cash Flow
The additional cash flow a company receives from undertaking a new project, after accounting for the expenses involved in the project.
Variable Costs
Costs that change in proportion to the level of production or sales activities, such as materials and labor.
Fixed Costs
Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.
- Recognize the importance of incremental cash flow principles in evaluating projects.
Verified Answer
Learning Objectives
- Recognize the importance of incremental cash flow principles in evaluating projects.
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