Which of the following best describes the treatment of an incremental cash flow in capital budgeting analysis?
A)Any cash flow that can be classified as incremental to a particular project is relevant in a capital budgeting analysis.
B)Any cash flow that can be classified as macro-incremental to a particular project is irrelevant in a capital budgeting analysis.
C)All firm cash flows project are relevant in a capital budgeting analysis.
D)Only cash flow that can be classified as a non-cash items to a particular project is relevant in a capital budgeting analysis.

Question

Quizplus · Accepted Answer

Incremental cash flows are the additional cash flows that result from a specific project and are relevant in capital budgeting analysis. These cash flows are compared to the costs of the project to determine its profitability and value. Therefore, option A is the correct answer. Option B is incorrect as incremental cash flows, whether micro or macro, are always relevant in capital budgeting analysis. Option C is incorrect as not all firm cash flows are relevant, only those that are incremental to the project being analyzed. Option D is incorrect as cash flows classified as non-cash items are not necessarily relevant in capital budgeting analysis.

Which of the Following Best Describes the Treatment of an Incremental