In evaluating a proposed project, since our concern is only with how much more or less operating cash will flow into the firm as a result of the proposed project, incremental operating cash inflows are the relevant cash flows.

Question

Quizplus · Accepted Answer

Incremental operating cash inflows are the relevant cash flows because they reflect the additional cash flows generated by the proposed project, and are therefore the most important factor in evaluating the project's potential profitability. Other types of cash flows, such as sunk costs or overhead expenses, are less relevant to this analysis.

In Evaluating a Proposed Project, Since Our Concern Is Only