Which of the following cash flows are incremental cash flows that need to be considered when evaluating a capital project?
A)Interest expenses on the financing of the project.
B)Sunk costs of engineering study to determine the feasibility of the project.
C)Opportunity cost of land being used for project that the firm already owns.
D)Both a and b are correct.
E)None of the above.

Question

Quizplus · Accepted Answer

Incremental cash flows are cash flows that are directly affected by a capital project and would not occur if the project was not undertaken. Options A (interest expenses) and B (sunk costs) are not incremental cash flows as they would occur regardless of whether or not the project is undertaken. The opportunity cost of land being used for the project is an incremental cash flow, as it represents the cost of using the land for the project rather than selling or leasing it, and it would not occur if the project was not undertaken.

Which of the Following Cash Flows Are Incremental Cash Flows