To evaluate a proposed capital project effectively, it is important to understand the fundamental concept of incremental cash flows. Incremental cash flows can be viewed as cash flows:
A)in addition to the company's normal business.
B)separate from the company's normal business.
C)occurring only if the project is undertaken.
D)All of the above

Question

Quizplus · Accepted Answer

Incremental cash flows are the cash flows that will occur only if the project is undertaken, and they are separate from the company's normal business. Therefore, both options A and B are correct, making D the best choice. It is important to consider all incremental cash flows when evaluating a proposed capital project because they reflect the true impact of the project on the company's overall financial situation.

To Evaluate a Proposed Capital Project Effectively, It Is Important