The basic cash flows that must be considered when determining the initial investment associated with a capital expenditure are the installed cost of the new asset, the after-tax proceeds (if any) from the sale of an old asset, and the change (if any) in net working capital.

Question

Quizplus · Accepted Answer

These are indeed the basic cash flows that need to be considered when calculating the initial investment associated with a capital expenditure. The installed cost of the new asset represents the cash outflow required to acquire and install the new asset. The after-tax proceeds from the sale of an old asset represent the cash inflow received from selling an existing asset that is being replaced or removed. The change in net working capital represents the cash flow impact of any changes in current assets (such as inventory or accounts receivable) and current liabilities (such as accounts payable) that result from the new investment.

The Basic Cash Flows That Must Be Considered When Determining