Question

A project's incremental cash flow is the difference between the firm's cash flow if it accepts the project versus if it rejects the project. Thus, if a project has an initial cost of $1 million in Year 1 and no other costs or revenues, then the incremental cash flow in that year will be -$1 million.

a.True
b.False

Answer 1

Answer:

The correct answer is True.

Explanation:

This statement is true, since as explained at the beginning of the statement, incremental cash flow is a technique that allows determining whether or not it is a good option to invest under a series of variables that determine the final price of the good. In this particular case, there is an anomalous behavior in period two, since no income is shown that allows the good to be sustained.