Question

According to the _____ principle, once the incremental cash flows from a project have identified, the project can be viewed as a "minifirm."

a) Walk-alone
b) Stand-with
c) Stand-and-deliver
d) Stand-alone

Answer 1

The answer to the student's question is 'stand-alone' principle. This principle is used in capital budgeting to evaluate the financial viability of a project based on its own cash flows as if it were a separate entity.

Step-by-step explanation:

According to the stand-alone principle, once the incremental cash flows from a project have been identified, the project can be viewed as a "minifirm." This principle suggests that the project's economic viability can be assessed independently of the parent company's cash flows, considering only the project's costs and revenues.

It's a foundational concept in capital budgeting, allowing analysts to focus on a project's direct financial impact without being confounded by the broader company operations.