MGT 181 Chapter Notes - Chapter 10: Sunk Costs, Cash Flow, Opportunity Cost
6 May 2019
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Document Summary
The difference between a firm"s future cash flows with a project and those without the project. The incremental cash flows for a project evaluation consist of any and all changes in the firm"s future cash flows that are a direct consequence of taking the project. Any cash flow that exists regardless of whether or not a project is undertaken is not relevant. The assumption that evaluation of a project may be based on the project"s incremental cash flows. When using this method, we look at the project as a kind of minifirm and compare its cash flows to the cost of acquiring it. This allows us to take a clear look at the merits of this project on its own, without the influence of other activities or projects. A cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision.
