Which of the following factors should be included in the cash flows used to estimate a project's NPV?
A)All costs associated with the project that have been incurred prior to the time the analysis is being conducted.
B)Interest on funds borrowed to help finance the project.
C)The end-of-project recovery of any working capital required to operate the project.
D)Cannibalization effects, but only if those effects increase the project's projected cash flows.
E)Expenditures to date on research and development related to the project, provided those costs have already been expensed for tax purposes.

Question

Quizplus · Accepted Answer

Only cash flows directly related to the project should be included in the calculation of NPV. Therefore, only the recovery of working capital that was invested in the project should be included. All other options represent either sunk costs or financing costs and should not be factored into NPV calculations.

Which of the Following Factors Should Be Included in the Cash