Incremental cash flow is the operating financial input that an enterprise invests in while taking part in a project. There are situations where the financial input increases as the project become more viable and that is considered to be a positive incremental cash flow. Positive incremental cash flow is a sign that the enterprise is making the right investment both financially and time wise. A project is always profitable when there are enough time and financial investment put in it. Once a project is certified profitable it leads to large profits and grows (Slater, Reddy & Zwirlein, 1998).
There are concepts that need to examine and help understand how to estimate the incremental cash flow of a project. The concepts include opportunity costs, erosion costs, and changes that take place in the working capital invested in the project. In order for the project to begin, it is important to consider the intended capital that will be required for the launching of the project. The capital should also include the fact that the equipment required may appreciate price wise with time and therefore understanding that aspect may help understand the investment required. Such an understanding will help come up with a budget plan that will help in coming up with the incremental cash flow that will be needed (Slater, Reddy & Zwirlein, 1998).
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In order to make a decision on whether to choose a project or not, there are factors that one needs to consider. The factors will give a better forecast on whether the project is viable and profitable to the enterprise. They include the starting capital needed and the rate at which the profits will be made depending on the amount of time that will be spent. The information can be met through forecasting and budgeting of the current investment required. In the forecasting, there are factors to be considered such as the current economic stand of the country. There are the fluctuating prices of equipment and resources required for the project (Shapiro, 2005).
References
Shapiro, A. C. (2005). Capital budgeting and investment analysis . Prentice Hall.
Slater, S. F., Reddy, V. K., & Zwirlein, T. J. (1998). Evaluating strategic investments: Complementing discounted cash flow analysis with options analysis. Industrial Marketing Management , 27 (5), 447-458.
