Why is it important for the financial analyst to focus on incremental cash flows? Which of the
Question:
Why is it important for the financial analyst to focus on incremental cash flows? Which of the following should be treated as an incremental cash flow when computing the NPV of an investment?
(a) A reduction in the sales of a company’s other products caused by the investment.
(b) An expenditure on plant and equipment that has not yet been made and will be made only if the project is accepted.
(c) Costs of developing a prototype of the product.
(d) Annual depreciation expense from the investment.
(e) Share buybacks by the firm.
(f) The resale value of plant and equipment at the end of the project’s life.
(g) Salary and medical costs for production personnel who will be employed only if the project is accepted.
Step by Step Answer:
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe