Question

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

A) Fixed costs.
B) Sunk costs.
C) Depreciation and amortization.
D) Variable costs.

Answer 1

The correct option is: amortization (option C)

Depreciation and amortization should not be included in a schedule of cash flows from operations when evaluating a capital project.

Step-by-step explanation:

When evaluating a capital project, the schedule of cash flows from operations should not include depreciation and amortization (option C). Depreciation represents the allocation of a tangible asset's cost over its useful life, while amortization refers to the allocation of an intangible asset's cost over its useful life. Both depreciation and amortization are non-cash expenses and do not involve actual cash outflows.

Including depreciation and amortization in the schedule of cash flows from operations would overstate the cash inflows and outflows associated with the project. To evaluate the profitability and cash-generating ability of a capital project, it is important to focus on the actual cash inflows and outflows from operations, such as revenue, expenses, changes in working capital, and taxes.