If the capital budgeting decision includes a replacement analysis, then

Question

Quizplus · Accepted Answer

When conducting a replacement analysis, only the incremental cash flows should be considered. This means that only the cash flows that will change as a result of the new investment should be included in the analysis. Any gains from the sale of the old asset or tax savings from disposing of the old asset should not be included as they are not incremental cash flows. This allows for a more accurate analysis of the potential cash flows associated with the new investment.

If the Capital Budgeting Decision Includes a Replacement Analysis, Then