Question

The cash flow from a project is computed as the:

a. sum of the incremental operating cash flow, capital spending, and networking capital cash flows incurred by the project.
b. sum of the sunk costs, opportunity costs, and erosion costs of the project.
c. net income generated by the project, plus the annual depreciation expense.
d. the sum of the incremental operating cash flow and an aftertax salvage value of the project.
e. net operating cash flow generated by the project, less any sunk costs, and erosion costs.

Answer 1

The answer is option E) The cash flow from a project is computed as the:net operating cash flow generated by the project, less any sunk costs, and erosion costs.

Step-by-step explanation:

Cash flow refers to the available cash remaining at the end of the accounting period.

It can be calculated by subtracting the cash at the beginning of an accounting period and that at the end of the period.

The cash flow form a project is derived by subtracting all non-cash income from total project revenue.

The non cash income include accounts receivable, interest income and capital gains. It is not included in the cash flow because, it is a non-cash asset that cannot be immediately used to cover short-term expenses.