Net incremental cash flows are necessary for calculating an investment's:
- net present value
- internal rate of return
- payback period
To illustrate net incremental cash flows let's assume that Your Corporation has the opportunity to purchase a product line from Divesting Company for a single cash payment of $800,000. Your Corporation expects that the product line will result in the following cash flows occurring in each year for 10 years:
- additional cash receipts or cash inflows of $900,000 (from the collection of accounts receivable related to product sales)
- additional cash payments or cash outflows of $750,000 (for payments related to the product line's costs and expenses)
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