Which one of the following statements is correct?
A)Project analysis should only include the cash flows that affect the income statement.
B)A project can create a positive operating cash flow without affecting sales.
C)The depreciation tax shield creates a cash outflow for a project.
D)Interest expense should always be included as a cash outflow when analyzing a project.
E)The opportunity cost of a company-owned building that is going to be used in a new project should be included as a cash inflow to the project.

Question

Quizplus · Accepted Answer

A project can create positive operating cash flow without affecting sales if it reduces costs or increases efficiency. The other statements are not correct:
A) Project analysis should include all relevant cash flows, not only those affecting the income statement.
C) The depreciation tax shield reduces taxes and increases cash flows.
D) Interest expense should be included as a cash outflow when analyzing a project, but only for the period when the project is being financed.
E) The opportunity cost of a company-owned building should be included as a cash outflow, not a cash inflow, since it represents the cost of using the building for the new project rather than for other purposes.

Which One of the Following Statements Is Correct