ACCA Performance Management (F5) Certification Practice Exam

What is a relevant cash flow when considering a new non-current asset?

1. Maintenance costs

2. Scrap/disposal proceeds

3. Estimated market value

4. Opportunity costs

The correct answer is: Scrap/disposal proceeds

When evaluating a new non-current asset, relevant cash flows are those that will be directly influenced by the decision to acquire that asset. Scrap or disposal proceeds represent the cash inflow that can be realized at the end of the asset's useful life. This cash inflow is certainly relevant because it directly affects the total cash flow related to the investment in the asset. When an organization assesses a potential investment, it is crucial to consider all cash inflows and outflows that will arise from that investment. The disposal proceeds can significantly impact the net present value (NPV) of the investment, making them essential for informed decision-making. Because they'll influence the overall financial outcome when the asset is sold or disposed of, these proceeds are relevant cash flows. Other factors, such as maintenance costs, estimated market value, or opportunity costs, may play a role in the overall assessment but do not directly contribute to cash flows associated with the decision to acquire the non-current asset in the way that disposal proceeds do. Maintenance costs are ongoing expenses and may be considered in operating costs, while estimated market value does not represent an actual cash flow unless realized through a transaction. Opportunity costs refer to potential benefits lost by choosing one investment over another but do not directly translate into cash flows associated