The Incremental Cash Flow from Projects for a Company Is

question 40

Multiple Choice

The incremental cash flow from projects for a company is computed as the:

• A) net operating cash flow generated by the project, less any sunk costs and erosion costs.
• B) sum of the incremental operating cash flow and after-tax salvage value of the project.
• C) net income generated by the project, plus the annual depreciation expense.
• D) sum of the incremental operating cash flow, capital spending, and change in net working capital of the project.
• E) sum of the sunk costs, opportunity costs, and erosion costs of the project.

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Definitions:

Direct Materials

Raw materials that are directly traced and are integral to the production of finished goods.

Direct Labor

The labor costs directly attributable to the production of goods or services.

Overhead Rate

The ratio used to allocate overhead costs to produced units, calculated by dividing total overheads by an allocation base like labor hours.

Work in Process Inventory

Inventory that includes all materials and labor currently in the process of being manufactured but not yet completed.