Your company makes gourmet dog biscuits. You are estimating cash flows for a project. Which of...
Your company makes gourmet dog biscuits. You are estimating cash flows for a project. Which of the following are incremental cash flows that should be considered?
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the incremental operating cash flows plus changes in capital spending and net working capital.
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the incremental operating cash flows minus any aftertax salvage value minus opportunity costs.
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the incremental operating cash flows plus test marketing costs and net working capital.
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the money you spent test marketing the new dog biscuits.
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the net income generated by the project plus the annual depreciation expense.
Homework Answers
Answer E the net income generated by the project plus the annual depreciation expense.
The Cash flows are calculated as follows
Net Income after Taxes = (Earnings before Depreciation and taxes - Dep)(1-tax rate)
Depreciation being a non cash item is deducted only to get the tax liability calculation. Therefore
Cash Inflows = Net Income + Depreciation
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