If a new asset is being considered as a replacement for an old asset, the relevant cash flows would be found by adding the operating cash flows from the old asset to the operating cash flows from the new asset.

Question

Quizplus · Accepted Answer

The relevant cash flows when considering a replacement asset would involve comparing the incremental cash flows generated by the new asset relative to the cash flows generated by the old asset. This would involve taking into account any additional revenues, cost savings, or other changes in cash flows associated with the replacement. Simply adding the operating cash flows of the old and new assets would not capture the incremental effect of the replacement asset on cash flows.

If a New Asset Is Being Considered as a Replacement