Capital Investment Appraisal PPT2

Question 1

What are relevant cash flows in the appraisal process?

Answer 1

Relevant cash flows are incremental cash flows and opportunity cash flows.

Question 2

What are incremental cash flows?

Answer 2

Cash flows that occur only as a consequence of a project being undertaken.

Question 3

What are opportunity cash flows?

Answer 3

Cash flows that have been lost from other investments, as a result of the project being implemented.

Question 3

What influences do capital projects normally have on tax cash flows?

Answer 3

Capital projects normally have two influences on tax cash flows: tax on profits made and tax relief on capital expenditure.

Question 4

What is inflation?

Answer 4

Inflation is a term used to describe the percentage increase in the cost of goods. It reflects a reduction in the purchasing power of money.