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Exam (elaborations)
Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS
Cash flow, which is the relevant financial variable, represents the actual flow of cash. 
Accounting income, on the other hand, reports accounting data as defined by 
Generally Accepted Accounting Principles (GAAP). 
b. Incremental cash flows are those cash flows that arise solely from the asset that is 
being evaluated. For example, assume an existing machine generates revenues of 
$1,000 per year and expenses of $600 per year. A machine being considered as a 
replacement would generate r...