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Fin 10

Fin 10

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Published by: MSA-ACCA on Jul 19, 2009
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12/03/2010

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Chapter 
 McGraw-Hill/Irwin
Copyright 
 
© 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
10
Making Capital InvestmentDecisions
 
10-2
Relevant Cash Flows
The cash flows that should be included ina capital budgeting analysis are those thatwill only occur if the project is acceptedThese cash flows are called
incremental cash flows
The
stand-alone principle
allows us toanalyze each project in isolation from thefirm simply by focusing on incrementalcash flows
 
10-3
Asking the Right Question
You should always ask yourself “Will thiscash flow occur ONLY if we accept theproject?”
If the answer is “yes”, it should be included inthe analysis because it is incrementalIf the answer is “no”, it should not be includedin the analysis because it will occur anywayIf the answer is “part of it”, then we shouldinclude the part that occurs because of theproject

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