Chapter 11, Problem 11.16P

a)

Summary Introduction

To determine:

Why it is important to evaluate capital budgeting projects on the basis of incremental cash flows.

Introduction:

The capital budgeting is the process of making huge investments by the firms to make their capital assets grow faster such as the building of new buildings, purchase of advanced costly machineries etc.

The incremental cash flow is the additional cash flow for the firm that is generated out of the new capital investment that the firm has undertaken.

b)

Summary Introduction

To determine:

Net incremental profits resulted from the renewal.

c)

Summary Introduction

To determine:

Operating cash flows resulted from the renewal.