When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects.

To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except:

The project's financing costs

The project's depreciation expense

The project's fixed$-$asset expenditures

Changes in net working capital associated with the project

Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are relevant to capital budgeting

decisions $($because they represent marginal cash flows that depend on the project's acceptance$),$ but others should be ignored.

is the cash flow that the firm forgoes as a result of accepting the project under consideration. In general, these are cash

Iternative to the project.

Cannibalization

A Sunk cost

mbly Products Inc. The company is evaluating a capital budgeting project and has come across a few issues that require

An Opportunity cost