Which of the following is a basic principle when estimating a project's cash flows?
A)cash flows should be measured on a pretax basis
B)cash flows should ignore depreciation because it is a non-cash charge
C)only direct effects of a project should be included in cash flow calculations
D)cash flows should be measured on an incremental basis

Question

Quizplus · Accepted Answer

The principle of incremental cash flows requires measuring only the changes in cash flows that are a direct result of the project. This means that all relevant cash inflows and outflows directly related to the project should be included, and only those that are incremental (i.e., different than if the project had not been undertaken) should be considered. Depreciation is a non-cash charge and should be included in cash flow estimates. Pretax cash flows may be useful in certain cases, but after-tax cash flows are usually more relevant.

Which of the Following Is a Basic Principle When Estimating