2. Identifying incremental cash flows Aa Aa When companies make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects To determine the incremental cash flows from a project, an analyst should include all of the following except Fixed-asset expenditures Depreciation Financing costs Changes in net working capital Indirect cash flows often affect a company's capital budgeting decisions. However, some of these indirect cash flows are relevant to capital budgeting decisions (because they represent marginal cash flows that depend on the project's acceptance), but others should be ignored represents the effect of the current project's acceptance on cash flows of the company's other projects. Because they depend on whether the current project is accepted, they should be included in the analysis Consider the case of Bumbly Products Ltd. The company is evaluating a capital budgeting project and has come across a few issues that require special attention. Classify each item as a sunk cost, cannibalisation, opportunity cost, or a change in net working capital (NWC). Then, in the last column, indicate whether the item should be included in the project's analysis or not. Sunk Opportunity Cost Change Include in Cost Cannibalisation in NWC the Analysis? The new project is expected to reduce sales revenue for O one of the company's other product lines The project will use some equipment that the companyO owns but isn't using currently. However, a used-equipment dealer has offered to buy the equipment Bumbly spent nearly $1.1 million in market research toO develop new product ideas Many of the new sales from this project will be made on credit, causing accounts receivable to increase Many of the new sales from this project will be made on credit, causing accounts receivable to increase The factory that the project will use could be used for another project that is expected to have a slightly positive net present value (NPV) Imagine Bumbly will be issuing debt to support this project and other capital budgeting projects this year. The company's interest expense will increase by $700,000. Should the change in interest expense be included in the analysis? O No O Yes Flash Player WIN 32,0,0,17