The value of a proposed capital budgeting project depends upon the:
A)Total cash flows produced
B)Incremental cash flows produced
C)Accounting profits produced
D)Increase in total sales produced

Question

Quizplus · Accepted Answer

The value of a proposed capital budgeting project depends upon the incremental cash flows it produces. Incremental cash flows are the additional cash flows generated by the project, over and above what would have been generated without the project. These incremental cash flows are used to calculate the net present value (NPV) of the project, which is a measure of the project's value. Therefore, B is the best choice. A, C, and D are not correct because total cash flows, accounting profits, and total sales may not reflect the incremental cash flows generated by the project.

The Value of a Proposed Capital Budgeting Project Depends Upon