Which of the following cash flows should be included as incremental costs when evaluating capital projects?
A) Investment in working capital that is directly related to a project
B) Expenses that are incurred in order to modify a firm's production facility in order to invest in a project
C) Opportunity costs that are directly related to a project
D) All of the above

Question

Quizplus · Accepted Answer

All of the choices should be included as incremental costs when evaluating capital projects.

A) Investment in working capital that is directly related to a project is an incremental cost because it represents funds that will be tied up in the project and unavailable for other uses.

B) Expenses that are incurred in order to modify a firm's production facility in order to invest in a project are also incremental costs, as they are not part of the usual operating costs of the business and must be incurred specifically for the project.

C) Opportunity costs that are directly related to a project are also incremental costs, as they represent the potential income or benefit that could have been obtained through an alternative use of the resources being invested in the project.

Which of the Following Cash Flows Should Be Included as Incremental