When making a capital budgeting decision, cash flows should be estimated on an incremental basis, not a total basis.

Question

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Cash flows should be estimated on an incremental basis (i.e. the additional cash flows that will be generated or incurred as a result of the investment) rather than a total basis (i.e. all cash flows of the business, including those that would have occurred without the investment). This allows for a more accurate assessment of the investment's profitability and its impact on the business.

When Making a Capital Budgeting Decision, Cash Flows Should Be