Which adjustment is a cash-flow adjustment related to future asset investments?

• A. Add back potential earnings generated by the new equipment - projected cash flow.
• B. Remove all equipment investment forecasts.
• C. Ignore revenue growth assumptions.
• D. Increase debt to finance purchases.

Answer: (A)

When evaluating cash flow in the context of future asset investments, you adjust the projection to reflect the expected cash-generating impact of those investments. This means incorporating the anticipated earnings the new equipment will contribute into the cash-flow forecast, recognizing that its operation will bring additional cash inflows over time.

So, adding back the potential earnings from the new equipment into the projected cash flow is the correct approach because it directly accounts for the future asset’s ability to generate cash. The other options don’t fit: removing all equipment investment forecasts would throw away important forward-looking information, ignoring revenue growth assumptions would understate future cash inflows, and increasing debt to finance purchases is a financing choice rather than a cash-flow adjustment tied to the asset’s future cash generation.