Evaluation of Capital projects using capita budgeting tools to determine the quality of three proposed investment projects. Must determine which project will bring the most value to the company based on forecasted cash flow as they relate to maximizing shareholder value.

Use capital budgeting tools to compute future project cash flows and compare them to upfront costs while only evaluating the incremental changes to cash flows.

Project A: Major Equipment Purchase

A new major equipment purchase which will cost $10 million. However, it is projected to reduce cost of sales by 5% per year for 8 years. The equipment is projected to be sold for salvage value estimated to be $500,000 at the end of year 8. Required rate of return of the project is 8%. Equipment will be depreciated at a MACRS 7-year schedule. Annual sales for year 1 are projected at 20 milion and should stay the same per year for 8 years. Before this project, cost of sales has been 60%. The marginal corporate tax rate is presumed to be 25%.

Project B: Expansion into three additional states

Project has a forecast to increase sales/revenues adn cost of saes by 10% per year for 5 years. Annual sales for the previous year were $20 million. Start-up costs are projected to be $7 million and an upfront needed investment in net working capital of $1 million. The working capital amount will be recouped at the end of year 5. The marginal corporate tax rate is presumed to be 25%. Required rate of return of the project is 12%.

Project C: Marketing/Advertising Campaign

A major new marketing/advertising campaign which will cost $2 milion per year and last 6 years. It is forecast that the campaign wil increase sales/revenues and costs of sales by 15% per year. Annual sales for the previous year were $20 million. The marginal corporate tax rate is presumed to be 25%. Required rate of return of the project is 10%

I don't know what they mean by incremental changes to cash flow. Also what's confusing is the problem supplies all projected cash flows. All I need to do is analyze and make a recommendation?