Question 7.1: Discuss which cash flows are relevant to investment appraisa...

The cash flows that are relevant to an investment appraisal calculation are those which will arise or change as a result of undertaking the investment project. Direct costs incurred, such as purchased raw materials, are relevant, as are changes in existing cash flows (incremental cash flows), such as additional fixed costs. The opportunity cost of labour and raw materials, which have alternative uses, may be a relevant cost. Tax liabilities are also relevant.