If a new asset is being considered as a replacement for an old asset, the relevant cash flows would be found by adding the expected cash flows attributed to old assets and the expected cash flows for new assets.

Question

Quizplus · Accepted Answer

The cash flows relevant for the decision of whether to replace an old asset with a new asset are the incremental cash flows, which are the cash flows that are expected to change as a result of making the replacement. Therefore, only the expected cash flows of the new asset would be considered, not the expected cash flows of both the old and new assets combined.

If a New Asset Is Being Considered as a Replacement