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Effect of Taxes

Finally, the incremental cash flows are adjusted for tax liability. In other words taxes paid are deducted from the cash flows to estimate the benefits arising out of the investment decision. To conclude the above discussion relating to the data required for the capital budgeting decision the expenses/costs to be considered are’ incremental after-tax cashews . Table 10.2 summaries the relevant and irrelevant information in relation to asset selection decisions.

Relevant and Irrelevant Outflows

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