Which of the following is a basic principle when estimating a project's cash flows?

A) Cash flows should be measured on a pretax basis.
B) Cash flows should ignore depreciation because it is a non-cash charge.
C) Only direct effects of a project should be included in cash flow calculations.
D) Cash flows should be measured on an incremental basis.

Incremental Basis

An approach that evaluates the additional benefits and costs of a decision by comparing the financial outcomes with or without the decision.

Pretax Basis

Financial calculations or comparisons made before deducting income tax expenses, providing a raw snapshot of performance or position.

Direct Effects

Immediate impacts or outcomes resulting from a specific action or event.