If the capital budgeting decision includes a replacement analysis, then:

Question

Quizplus · Accepted Answer

When conducting a replacement analysis, only incremental cash flows should be considered. This means that only the difference between the cash flows of the new asset and the old asset should be taken into account, rather than the entire cash flows of the new asset. A gain from the sale of the old asset may be included as an inflow, but it would not represent a tax savings inflow. The sale price and tax savings may also be considered, but these would not increase the cash inflows throughout the asset's life. Only initial cash inflow should not be considered.

If the Capital Budgeting Decision Includes a Replacement Analysis, Then