Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions:

The present value of can be used to determine the basis of a firm$$s value.

Which of the following best describes incremental cash flows?

Incremental cash flows are not relevant because they will occur whether or not the project is accepted.

They are the difference between the cash flows the firm will have if it accepts the project versus the cash flows it will have if it rejects the project.