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Importance of incremental cash flows in capital investment decisions

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It is important to identify and use only incremental cash flows in capital investment decisions:

a. Because ultimately it is the change in a firm's overall future cash flows that matter.

b. Because they are the simplest to calculate.

c. To accommodate unforeseen changes that might occur.

d. Only when the stand-alone principal fails to hold.

e. Whenever sunk costs are involved.

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Solution Summary

The importance of incremental cash flows in capital investment decisions are given.

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