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 additional net operating working capital required to operate the project.
D) Cannibalization effects,but only if those effects increase the project's projected cash flows.
E) Expenditures to date on research and development related to the project,provided those costs have already been expensed for tax purposes.

Question

Quizplus · Accepted Answer

The cash flows used to estimate a project's NPV should include the end-of-project recovery of any additional net operating working capital required to operate the project. This is because working capital is tied up in the project and must be accounted for in the analysis. Options A, B, D, and E are not correct because sunk costs (Option A), interest (Option B), cannibalization effects (Option D), and expenditures to date on research and development (Option E) are not relevant for the project's future cash flows. Only costs and revenues that will occur in the future should be included in the cash flow analysis.

Which of the Following Factors Should Be Included in the Cash