Expansion project analysis requires determining the amount of incremental cash as a result of the expansion relative to the cash flows if the expansion project was not accepted.The incremental cash flows will always be discounted at the same rate as the firm's original cash flows sine we are simply expanding the firm and not changing the risk of the firm.

Question

Quizplus · Accepted Answer

The discount rate should reflect the risk of the incremental cash flows, which may differ from the firm's original cash flows, especially if the expansion changes the risk profile.

Expansion Project Analysis Requires Determining the Amount of Incremental Cash