In capital budgeting decisions, a $10,000 decrease in annual cash outflows can be treated as if it is a $10,000 increase in annual cash inflows.

Question

Quizplus · Accepted Answer

In capital budgeting decisions, reducing cash outflows has the same effect on cash flows as increasing cash inflows. Therefore, a $10,000 decrease in annual cash outflows has the same impact on the project's net present value (NPV) as a $10,000 increase in annual cash inflows. This concept is known as the equivalence principle.

In Capital Budgeting Decisions, a $10,000 Decrease in Annual Cash