Relevant Cash Flows: Count Only What Changes
Distinguish relevant incremental cash flows from sunk, allocated, and non-cash items.
The move: ask, "What changes if we approve this?" Relevant cash flow discipline is the finance version of clean decision hygiene. It keeps the project model focused on avoidable future consequences. Sunk costs are out because no decision today can recover them. Allocated overhead is out unless the project changes the actual cash paid. Opportunity costs are in because using an asset for one project blocks its best alternative use. Include the cash that moves Capex, incremental operating cash flow, tax effects, working capital investment, salvage value, and asset-disposal proceeds belong in the model when they change because of the…
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