Respuesta :
Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project. A positive incremental cash flow is a good indication that an organization should invest in a project.
There are various indirect effects that could affect cash flows like:
- releasing of a product that will generate sales of replacement parts and services in future years
- Dismantling of existing product sales by introduction of a new product
- increased sales of an existing product by release of a complementary product
- losing existing store sales by locating a new store too close by
There are various other difficulties that come overboard like sunk cost, opportunity cost, cannibalization and allocated costs. It tries to predict the future cash flow of a business if it takes on a new project. It helps management determine if a project is worth doing or not.
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