Define “incremental cash flow.”
(1) Should you subtract interest expense or dividends when calculating project cash flow?
(2) Suppose the firm had spent $100,000 last year to rehabilitate the production line site. Should this be included in the analysis? Explain.
(3) Now assume the plant space could be leased out to another firm at $25,000 per year. Should this be included in the analysis? If so, how?
(4) Finally, assume that the new product line is expected to decrease sales of the firm’s other lines by $50,000 per year. Should this be considered in the analysis? If so, how?