Answer (C) is correct . Relevant cash flows are a much more reliable guide when judging capital projects, since only they provide a true measure of a project’s potential to affect shareholder value. The relevant cash flows can be divided into three categories: (1) net initial investment, (2) annual net cash flows, and (3) project termination cash flows. An incremental cash flow is the difference in cash received or disbursed resulting from selecting one option instead of another. It is not a category of relevant cash flows.
Answer (A) is incorrect because Annual net cash flows are a category of relevant cash flows.
Answer (B) is incorrect because Project termination cash flows are a category of relevant cash flows.
Answer (D) is incorrect because Net initial investment is a category of relevant cash flows.
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