Which of the following is true regarding project evaluation?

Question

Quizplus · Accepted Answer

The stand-alone principle states that a project should be evaluated based on its incremental cash flows, meaning the additional cash flows generated by the project compared to the cash flows that would have been generated without the project. This is the most commonly accepted method of project evaluation. Financing costs are not included in the statement of cash flows because they are already accounted for in the discount rate used to calculate the NPV. Changes in net working capital (NWC) are considered incremental cash flows because they represent cash flows required to support the project. Tax consequences can arise from the sale of fixed assets at the end of a project because there may be a taxable gain or loss on the sale. The choice between straight-line depreciation and CCA (Canadian Capital Cost Allowance) will have an impact on project NPV because they result in different amounts of depreciation expenses and therefore different cash flows.

Which of the Following Is True Regarding Project Evaluation