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What are incremental cash flows? What types of cash flows are considered to be incremental?

What are incremental cash flows? What types of cash flows are considered to be incremental?

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Answer #1

Incremental cash flows are the cash flows that are generated in addition to what the old project would have generated.

Say the old project generated a cash flow of $100 in each of the next 5 years and the new project generates a cash flow of $300 in each of the next 5 years. The incremental cash flow is $200. That is $300 - $100.

The type of cash flows that are considered to be incremental is the operating cash flows of the company.

Eg. reduction in expenses in the new project ( a positive effect)

additional costs incurred in the new project ( a negative effect)

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