Question

Typical cash inflows of a capital investment project include all of the following EXCEPT: A. projected incremental revenues from the project. B. cost reductions in operating costs. C. the salvage value of the investment at the end of its useful life. D. tax savings generated by depreciation expense. E. the original cost paid for the capital investment.

Answer 1

Answer:

E

Explanation:

Cash inflows are cash increases in a project

they include :

projected incremental revenues from the project.

cost reductions in operating costs.

the salvage value of the investment at the end of its useful life

tax savings generated by depreciation expense.

Cash outflows reduces the cash available in a project. They are usually subtracted

they include

the original cost paid for the capital investment.

working capital investment

A project is profitable if cash inflow exceeds cash outflow

Answer 2

Typical cash inflows of a capital investment project do not include the original cost paid for the capital investment.

A capital investment project is regarded as a project that aims at increasing the assets of the business. The inflows in these projects are derived when cash outflows are subtracted from revenues and cash flows of the project.

Therefore,  the original cost that would be paid for the capital investment becomes part of cash outflow from the business, which decreases the total availability of cash.

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