In developing the cash flows for an expansion project, the analysis is the same as the analysis forreplacement projects where
A) all cash flows from the old assets are equal.
B) all cash flows from the old asset are zero.
C) prior cash flows are irrelevant.
D) cash inflows equal cash outflows.

Question

Quizplus · Accepted Answer

In replacement projects, the old asset is being replaced by a new asset and therefore all cash flows from the old asset are zero. Similarly, in expansion projects, the cash flows from the existing assets that are being expanded are also zero as they are being modified or upgraded. Therefore, the analysis for replacement and expansion projects is the same in this regard.

In Developing the Cash Flows for an Expansion Project, the Analysis