Question

ABC Engineering just purchased a new machine. All of the following are examples of incremental cash flows EXCEPT:

1) Initial investment cost
2) Operating costs
3) Additional revenue generated
4) Depreciation expense

Answer 1

Depreciation expense is not an incremental cash flow as it is a non-cash entry, unlike the initial investment cost, operating costs, and additional revenue which directly affect cash flow.

Step-by-step explanation:

When ABC Engineering purchases a new machine, the associated incremental cash flows would typically include the initial investment cost, operating costs, and additional revenue generated by using the machine.

\However, depreciation expense is not considered an incremental cash flow, because it is a non-cash accounting entry used for tax and financial reporting purposes rather than a cash outlay impacting the firm's cash position.