Question

The cash flows of a project should: Multiple Choice be computed on a pretax basis. include all sunk costs and opportunity costs. include all incremental and opportunity costs. be applied to the year when the related expense or income is recognized by GAAP. include all financing costs related to new debt acquired to finance the project.

Answer 1

Answer:

Include all incremental and opportunity costs

Explanation:

Incremental cash flows from a project is usually said to be a firms cash flows with the project minus firms cash flows without the project. It includes the sales captured from the firm's competitors, incremental sales brought to the firm as a whole, retained sales that would have been lost to new competing products.

Opportunity costs are included as incremental costs when evaluating capital projects because they directly relates to a project, and theexpenses that are incurred in oder to improve a firm's production facility in order to invest in a project, investments in working capital that is related to a project in a direct way.