A. It is correct to say that net working capital changes should be included in cash flow forecasts.

B. It is correct to say that sunk costs are not incremental flows and should not be included. The only cash flows that are relevant in a capital budgeting analysis are those that will occur as a direct result of the project under consideration. Sunk costs by definition are those which have already occurred and cannot be changed.

C. It is not correct to say that book depreciation is relevant because it affects net income. Book depreciation is the depreciation expense recorded under generally accepted accounting principles. The depreciation used in capital budgeting analyses is the type of depreciation used for tax purposes, which is different from the type of depreciation used for book purposes. The type of depreciation for tax purposes used in capital budgeting analyses is relevant because it impacts the amount of income tax due, which is relevant because it is a cash flow item.

D. It is correct to say that tax depreciation must be considered because it affects cash payments for taxes.