Which of the following would be considered relevant cash flows in a capital budgeting evaluation?
I.Increased after-tax income.
II.Tax savings due to increased capital cost allowance.
III.Increased expenditures on inventory for the new project.
IV.Benefits that accrue to the local community.

Question

Quizplus · Accepted Answer

Only Increased after-tax income and Tax savings due to increased capital cost allowance are directly relevant to the cash flows of the project. Increased expenditures on inventory for the new project is a cost and therefore, a relevant cash outflow. Benefits that accrue to the local community may be important from a social responsibility standpoint, but they are not direct cash flows to the company and therefore not relevant in the capital budgeting evaluation.

Which of the Following Would Be Considered Relevant Cash Flows