ICAEW BIP · Chapter 13 · Question 9 of 9
In a net present value calculation for a new production line, which of the following should be included as a relevant cash flow?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Working capital needed at the start of the project and released at the end
Explanation
Relevant cash flows are future, incremental cash flows caused by the project. Working capital tied up and later released is a real cash flow. Depreciation is not a cash flow, allocated head office costs that do not change are not incremental, and financing costs are already allowed for in the discount rate, so including interest would count them twice.
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