82 the relevant cash flows relevant cash flows the

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Unformatted text preview: ; and (d) conventional versus nonconventional cash flow patterns. 8.2 The Relevant Cash Flows relevant cash flows The incremental cash outflow (investment) and resulting subsequent inflows associated with a proposed capital expenditure. incremental cash flows The additional cash flows— outflows or inflows—expected to result from a proposed capital expenditure. To evaluate capital expenditure alternatives, the firm must determine the relevant cash flows. These are the incremental cash outflow (investment) and resulting subsequent inflows. The incremental cash flows represent the additional cash flows—outflows or inflows—expected to result from a proposed capital expenditure. As noted in Chapter 3, cash flows rather than accounting figures are used, because cash flows directly affect the firm’s ability to pay bills and purchase assets. The remainder of this chapter is devoted to the procedures for measuring the relevant cash flows associated with proposed capital expenditures. CHAPTER 8 Capital Budgeting Cash Flows 361 Major Cash Flow Components initial i...
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