GENERAL KNOWLEDGE

Detailed explanation-1: -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.

Detailed explanation-2: -Capital budgeting involves identifying the cash in ows and cash out ows rather than accounting revenues and expenses owing from the investment. For example, non-expense items like debt principal payments are included in capital budgeting because they are cash ow transactions.

Detailed explanation-3: -A capital budgeting decision is typically a go or no-go decision on a product, service, facility, or activity of the firm. That is, we either accept the business proposal or we reject it. 2. A capital budgeting decision will require sound estimates of the timing and amount of cash flow for the proposal.

Detailed explanation-4: -Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company’s cash flow will increase with the acceptance of the project.