When evaluating an investment project,which of the following best describes the financial information needed by the decision maker?
A) after-tax accounting profits
B) after-tax incremental cash flows to the company as a whole
C) incremental cash flows before taxes so the decision will not be biased by a tax code that may change in the future
D) pre-tax accounting profits adjusted for any accounting method changes

Question

Quizplus · Accepted Answer

When evaluating an investment, decision makers should focus on the incremental cash flows that the investment will generate for the company. This means looking at the after-tax cash flows that are incremental to those that would be earned without the investment. Accounting profits alone are not sufficient because they do not consider cash flows or timing of cash flows, and pre-tax cash flows may be biased by changes in tax laws. Therefore, option B, after-tax incremental cash flows to the company as a whole, is the best choice.

When Evaluating an Investment Project,which of the Following Best Describes