Question

The incremental cash flows of a project are best defined as:_________.a. the increase or decrease in a firm's cash flows resulting from adding the project, excluding all sunk and opportunity costs. b. any change in a firm's cash flows resulting from the addition of the project including opportunity costs. c. the total cash flows of a firm once the new project is completely integrated into the firm's operations. d. the cash received from the additional sales generated by the project.

Answer 1

The correct answer is option (B) any change in a firm's cash flows resulting from the addition of the project including opportunity costs

Step-by-step explanation:

Solution

The amount of additional cash flow operating to the firm by taken anew project is referred to as incremental cash flow, just as it is incremental, the flow would be a positive increment.

A firm or organization always look towards having an incremental that is positive for cash flow to in maximizing share holder's profit or wealth.

Hence, in order to find the incremental cash flow the firm should examine the opportunity cost that could have been used in other places to generate revenue.