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What is the incremental cash flow for a company that pays $5000 to a consulting firm to undertake a feasibility study for a project  that will return net cash inflows of $25,000 p.a ?Group of answer choices$25,000$30,000$20,000Not enough information to answer$10,000

Question

What is the incremental cash flow for a company that pays 5000toaconsultingfirmtoundertakeafeasibilitystudyforaproject thatwillreturnnetcashinflowsof5000 to a consulting firm to undertake a feasibility study for a project  that will return net cash inflows of 25,000 p.a ?Group of answer choices25,00025,00030,00020,000Notenoughinformationtoanswer20,000Not enough information to answer10,000

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Solution

The incremental cash flow for the company can be calculated by subtracting the initial investment (cost of the feasibility study) from the net cash inflows that the project will return.

Here are the steps:

  1. Identify the net cash inflows from the project. In this case, it's $25,000 per annum.

  2. Identify the initial investment. In this case, it's $5,000 paid to the consulting firm for the feasibility study.

  3. Subtract the initial investment from the net cash inflows.

So, 25,000(netcashinflows)−25,000 (net cash inflows) - 5,000 (initial investment) = $20,000.

Therefore, the incremental cash flow for the company is $20,000.

This problem has been solved

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