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Chapter+09 - Chapter 9 Incremental Cash Flows The...

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Chapter 9 10/3/2011 1 Incremental Cash Flows The incremental cash flows for project evaluation consist of any and all changes in the firm’s future cash flows that are a direct consequence of taking the project. Incremental cash flows are what are discounted to make the decisions and descriptions for the NPV, IRR, and payback. With versus without. Sunk Costs A cost that has already been incurred (or cannot now be avoided) and cannot be recovered and therefore should not be considered in an investment decision. Driving to Rexburg Manhattan property Marketing studies Opportunity Costs The most valuable alternative that is given up if a particular investment is undertaken. Disney and strawberries Land Market values not book values Side Effects Any and all Erosion, cannibalization, synergy Net Working Capital Cash counts, not profit Receivables and Inventory Payables An increase in the other parts of net working capital is a reduction in cash.
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