The cash flows of a project should:
A) be computed on a pre-tax basis.
B) include all sunk costs and opportunity costs.
C) include all incremental costs, including opportunity costs.
D) be applied to the year when the related expense or income is recognized by GAAP.
E) include all financing costs related to new debt acquired to finance the project.

Question

Quizplus · Accepted Answer

Cash flows of a project should include all incremental costs, including opportunity costs. This means that only the costs that are directly related to the project should be considered, and all costs that are not necessary for the project should be excluded. The opportunity cost is the cost of the best alternative that is forgone in order to undertake the project. It is important to consider the opportunity cost because it provides a measure of the value of the resources that are used in the project. By including all incremental costs, the cash flows will accurately reflect the costs and benefits of the project.

The Cash Flows of a Project Should