Question

201
11. In replacement decision market value of existing assets is
considered as
a) Cash inflow
b) Cash outflow
c) Scrap value
d) Cost of capital​

Answer 1

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Answer 2

Answer:

In replacement decision market value of existing assets is considered a Cash outflow Cash is more important for an organisation than profits and Cash flows are much easier to calculate compared to profits.

Explanation:

The net present value and internal rate of return of additional cash flows, i.e. the difference between periodic net cash flows if the existing asset is kept and periodic net cash flows if the asset is replaced, are used to make decisions about replacing an existing asset with another. The capital budgeting method's decision rule specifies that a project is acceptable if the difference between its discounted cash inflows and cost is positive.