Question: 1. Why do we focus on cash flows rather than accounting profits in making our capital-budgeting decisions? Why are we interested only in incremental cash flows rather than total cash flows?
2. If depreciation is not a cash-flow expense, does it affect the level of cash flows from a project in any way? Why?
3. If a project requires an additional investment in working capital, how should this be treated when calculating the project's cash flows?
2. How do sunk costs affect the determination of cash flows associated with an investment proposal?