Which of the following statements is correct?
A) Capital budgeting analysis for expansion and replacement projects is essentially the same because the types of cash flows involved are the same.
B) The replacement decision involves an analysis of two independent projects where the relevant cash flows include the initial investment,additional depreciation,and the terminal value.
C) The change in working capital for a project is the difference between the required increase in current assets and the spontaneous increase in current liabilities and is always positive.
D) The supplemental operating cash flow for capital budgeting includes return on invested capital,which is net income,and return of part of invested capital,which is depreciation.
E) When a firm implements a project which requires an increase in working capital,both the increase in current assets and current liabilities must be financed.

Question

Quizplus · Accepted Answer

The supplemental operating cash flow in capital budgeting indeed includes both the return on the invested capital, which is represented by net income, and the return of part of the invested capital, which is represented by depreciation. This is because depreciation is a non-cash charge that reduces taxable income, thereby affecting cash flows, while net income reflects the profitability of the project after accounting for all expenses, including depreciation.

Which of the Following Statements Is Correct