#cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
An
incremental cash flow is the cash flow that is realized because of a decision: the cash flow
with a decision minus the cash flow
without that decision. If opportunity costs are correctly assessed, the incremental cash flows provide a sound basis for capital budgeting.
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3. BASIC PRINCIPLES OF CAPITAL BUDGETINGst $10 million, what is the opportunity cost? The answers to these three questions are, respectively: the current market value, the cash flows the old machine would generate, and $10 million (which you could invest elsewhere).
<span>An incremental cash flow is the cash flow that is realized because of a decision: the cash flow with a decision minus the cash flow without that decision. If opportunity costs are correctly assessed, the incremental cash flows provide a sound basis for capital budgeting.
An externality is the effect of an investment on other things besides the investment itself. Frequently, an investment affects the cash flows of other parts of the com Summary
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