Which of the following statements is correct?
A) An asset that is sold for less than book value at the end of a project's life will generate a loss for the firm and will cause an actual cash outflow attributable to the project.
B) Only incremental cash flows are relevant in project analysis and the proper incremental cash flows are the reported accounting profits because they form the true basis for investor and managerial decisions.
C) It is unrealistic to expect that increases in net working capital that are required at the start of an expansion project are simply recovered at the project's completion.Thus,these cash flows are included only at the start of a project.
D) Equipment sold for more than its book value at the end of a project's life will increase income and,despite increasing taxes,will generate a greater cash flow than if the same asset is sold at book value.
E) All of the above are false.

Question

Quizplus · Accepted Answer

Equipment sold for more than its book value at the end of a project's life does indeed increase income and, despite the tax increase, results in a higher cash flow compared to selling the asset at its book value. This is because the gain from the sale (sale price minus book value) is subject to tax, but the net effect after taxes still adds to the project's cash flow.

Which of the Following Statements Is Correct