In estimating cash flows, the firm should exclude:
A)the interest expense on debt financing.
B)opportunity costs.
C)sunk costs.
D)a and c
E)a, b, and c

Question

Quizplus · Accepted Answer

Interest expense on debt financing is not included in cash flow estimations because cash flows are analyzed on a pre-financing basis to assess the project's viability irrespective of financing methods. Sunk costs are past costs and should not be considered in new project evaluations as they cannot be recovered or changed. However, opportunity costs are relevant because they represent the benefits foregone by not investing resources elsewhere and should be included in cash flow estimations.

In Estimating Cash Flows, the Firm Should Exclude