Question

what is meant by the term incremental cash flow in cash flow estimation

Answer 1

Incremental cash flows are the additional cash flows which are generated from accepting a particular proposal. The cash flows can be three types. 1) Initial incremental cash outflows which are cash outflows involved in setting up or proposal 2) yearly incremental cash flows 3) terminal cash flows. ie the cash flows occurred at the end of the project.. One can discount the cash flows with weighted average cost of capitl or suitable discount rate. The net present value will be the addition ot the wealth of the company.