Which of the Following Is a Basic Principle When Estimating

question 89

Multiple Choice

Which of the following is a basic principle when estimating a project's cash flows?

• A) Cash flows should be measured on a pretax basis
• B) Cash flows should ignore depreciation because it is a noncash charge
• C) Only direct effects of a project should be included in cash flow calculations
• D) Cash flows should be measured on an incremental basis

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Definitions:

Deadweight Loss

An economic inefficiency that occurs when the total welfare in a market is not maximized, resulting from distortions such as taxes, subsidies, or monopolies.

Inelastic Demand

A situation where the demand for a product does not significantly change with a change in its price.

Tax Revenues

Tax revenues are the income that governments collect from individuals, corporations, sales, and other sources, used to fund public services and operations.

Tax Increases

Government actions that raise the amount of taxes levied on individuals, businesses, or transactions, affecting income, purchasing power, and investment.