1. Which of the following statements is incorrect regarding cash flows determination for a typical capital budgeting process?

A. All cash flows must be after-tax figures.

B. Infusion of new net working capital should be duly accounted for as a positive initial cash flow.

C. Salvage value is recognized as a positive cash flow at the end of the project’s life.

D. Although difficult to estimate, the amounts of revenue erosion (cannibalization) or lost opportunities due to the project in question should be included as negative cash flows.

2. Which of the following statements is incorrect as a requirement for a good investment evaluation tool?

A. A good investment evaluation tool must consider different levels of risk involved.

B. A good tool must consider all cash flows involved until the payback period.

C. A good tool must consider the time value of money.

D. A good tool must be able to rank projects in desirability.