The present value of the expected net cash inflows for a project will most likely exceed the present value of the expected net profit after tax for the same project because
A) Income is reduced by taxes paid,but cash flow is not.
B) There is a greater probability of realizing the projected cash flow than the forecasted income.
C) Income is reduced by dividends paid,but cash flow is not.
D) Income is reduced by depreciation charges,but cash flow is not.
E) Cash flow reflects any change in net working capital,but sales do not.

Question

Quizplus · Accepted Answer

Income is reduced by non-cash charges such as depreciation, which do not affect the cash flow. This means that while depreciation reduces net income, it does not reduce the cash inflow, leading to a situation where the present value of cash inflows can be higher than the present value of net income.

The Present Value of the Expected Net Cash Inflows for a Project