The first step in estimating cash flow is to determine the relevant cash flows.
A common definition for relevant cash flows states that they must occur in the future and be incremental. While it may appear obvious, only costs or revenues that generate cash flow should be included. As a result, depreciation charges, for example, should be excluded. All relevant cash flows for a project must be considered in the capital budgeting analysis. Relevant cash flows are those that change as a result of the project's acceptance. The cash flow statement is important because it measures the company's cash position.
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