Which of the following best describes relevant cash flows?

Relevant cash flows are those cash flows that will be directly affected by a decision to proceed with a project. They include only those cash inflows and outflows that will change as a result of undertaking the project, which means they are incremental in nature.

This involves considering both the additional cash inflows that the project is expected to generate and the outflows related to costs that will be incurred to implement the project. By focusing on these incremental cash flows, decision-makers can assess the true financial impact of pursuing a particular project, which aligns with the principle of assessing only future impacts rather than past costs.

In contrast, historical costs or sunk costs, which are represented in other options, do not affect future cash flows and should not factor into current decision-making. By concentrating solely on the incremental aspects, stakeholders can make more informed decisions that enhance overall financial performance.