Asked by Nicole Steele on Jun 07, 2024
Verified
To evaluate a proposed capital project effectively, it is important to understand the fundamental concept of incremental cash flows. Incremental cash flows can be viewed as cash flows:
A) in addition to the company's normal business.
B) separate from the company's normal business.
C) occurring only if the project is undertaken.
D) All of the above
Incremental Cash Flows
The additional cash flow a business receives from taking on a new project, used in capital budgeting to analyze the profitability of an investment or project.
Company's Normal Business
Refers to the core activities and operations that a company engages in on a day-to-day basis to generate revenue and profit.
Undertaken
To commit oneself to a task or obligation.
- Acknowledge the significance of incremental cash flows in evaluating capital projects.
- Comprehend the principles of incremental cash flow analysis in capital budgeting decisions.
Verified Answer
SI
Shoubii I NarmadaJun 14, 2024
Final Answer :
D
Explanation :
Incremental cash flows are the cash flows that will occur only if the project is undertaken, and they are separate from the company's normal business. Therefore, both options A and B are correct, making D the best choice. It is important to consider all incremental cash flows when evaluating a proposed capital project because they reflect the true impact of the project on the company's overall financial situation.
Learning Objectives
- Acknowledge the significance of incremental cash flows in evaluating capital projects.
- Comprehend the principles of incremental cash flow analysis in capital budgeting decisions.