Question

Incremental cash flows in relation to capital budgeting decisions refer to the ____________.

• A. Cash flows which are increasing over a period of time
• B. Incremental change in cash flows if the project is extended one year beyond its life period
• C. Cash flows which are directly attributable to the investment
• D. Difference between cash inflow streams and the initial outflow
• E. Comparision between any two cash outflows in a project's life period

Answer 1

The correct option is E Comparision between any two cash outflows in a project's life period

Incremental cash flows are the net additional cash flows generated by a company by undertaking a project. Capital budgeting decisions are based on comparison of a project's initial investment outlay to the future incremental cash flows of the project and its terminal cash flow.