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    Incremental Benefits and Sunk Costs

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    Describe why financial decisions are based on incremental benefits.

    How does a sunk cost affect the incremental benefit from a decision?

    Explain why the notes to a firm's financial statements are an integral part of the financial statements.

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    INCREMENTAL BENEFITS AND NOTES TO FINANCIAL STATEMENTS

    Why financial decisions are based on incremental benefits:

    Keown et al. (2002) define incremental analysis as a method of analysis for credit policy changes in which the incremental benefits are compared to the added costs. As further noted by these authors, it is looking into the cash flows as a result of a financial decision (e.g. policy change) as against the cash flow without the financial decision or the policy change. To them, if the benefits resulting from the decision outweigh the costs, the financial decision or the policy change should be implemented.

    Financial decisions should be based on incremental benefits because such benefits will ...

    Solution Summary

    This solution provides a detailed explanation of why financial decisions are based on incremental benefits, how does a sunk cost affect the incremental benefit from a decision, and why the notes of to a firm's financial statements are an integral part of the financial statements.

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