Which of the following combinations should be treated as incremental cash flows

Question

Which of the following combinations should be treated as incremental cash flows when deciding whether to invest in a new engine for a passenger ship? The ship is already owned but the existing engine would have to be scrapped. a Money already paid to a machine engineering consultant. b. Spare parts to be carried as a precaution in case the new engine fails c. The reduction in corporation tax resulting from depreciation of the new engine d. Future depreciation of the new engine e. A proportion of the cost of refurbishing the captains' new living quarters. f The cost of a new lifeboat purchased last year g Costs of removing the old engine h. Scrap value of the old engine. D a, d, e, f C) a, d, g, h D b,c, e.f O b, c, g. h

Explanation / Answer

Only the cost related to new engine and removing old engine should be considered. So items as cost of refurbishment of captain's quarters, lifeboats and any sunk cost should not be considered. Also depreciation is not a cash outflow.

Correct answer is b,c,g,h

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