Capital budgeting analysis requires not only the evaluation of cash flows but also the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, complete the following questions. Which of the following is a reason cash flows may differ from accounting income? The total number of units sold will be different for accounting income and cash flows. Depreciation is a tax-deductible expense but is not a cash outlay. Ideally, capital budgeting analysis should take cash flows into account Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, complete the following question. A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too many miles on them. Which type of project would this be considered? An expansion project A replacement project What are sunk costs? Sunk costs are in the capital budgeting analysis. The role of externalities A large soft-drink company currently produces regular cola and diet cola. It is considering introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes like regular cola is most likely to produce externality. CanParts Inc. and AmeriParts Inc. are both auto parts manufacturers. Their revenues and expenses are identical except that AmeriParts claims a depreciation expense on its depreciable assets. Assuming all sales and expenses are for cash, which company will have the lower earnings before tax but the higher after-tax cash flow? CanParts Inc