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.

Question

Quizplus · Accepted Answer

The cash flows used to estimate a project's NPV should include the end-of-project recovery of any working capital required to operate the project. Options A and B are incorrect because costs incurred prior to the analysis and interest on funds borrowed should be considered sunk costs and not included in the cash flows. Option D is incorrect because cannibalization effects should be included regardless of whether they increase or decrease the project's projected cash flows.

Which of the Following Factors Should Be Included in the Cash