Use the following two statements to answer this question:
I.Expansion projects are projects that would add something extra to the firm in terms of sales or cost savings.The incremental cash flows arising from such investment decisions are the new cash flows.
II.Replacement projects are projects that involve the replacement of an existing asset with a new one.The incremental cash flows arising from such investment decisions are the new operating expenses.

Question

Quizplus · Accepted Answer

Statement I is correct in defining expansion projects and their incremental cash flows. However, statement II is incorrect in stating that replacement projects result in new operating expenses. Replacement projects may result in savings due to improved efficiency, but they do not necessarily result in new operating expenses.

Use the Following Two Statements to Answer This Question