Which one of the following is an example of an incremental cash flow for Project A?

a) The property taxes on a currently owned warehouse that has been sitting idle but is going to be utilized by Project A

b) The insurance on a building the company currently owns that will house the operations for Project A

c) The rental cost of some new machinery that will be acquired for Project A

d) The cost of the test marketing to ascertain whether or not Project A is feasible

e) The contractual annual salary of the company president

c) The rental cost of some new machinery that will be acquired for Project A

Explanation:

Incremental cash flow for a project relate to those activities undertaken specifically for the project which involve a fixed outlay of cash flows.

It means possible increase or decrease in cash flows when a new project is taken up. Such cash flows are entirely attributable to the project under consideration.

In the given case, property taxes, insurance were pre existing costs i. e which would've been incurred anyway.

Similarly, test marketing cost to know of project viability is not a recurring but one time cost and most importantly it is incurred prior to taking up the project.

Contractual annual salary of the president is not attributable to Project A alone.

Hence, the rental cost of some new machinery that will be specifically acquired for Project A would be termed as incremental cash flow for Project A.