A Company Is Considering an Expansion Project

question 73

Multiple Choice

A company is considering an expansion project. The company's CFO plans to calculate the project's NPV by discounting the relevant cash flows (which include the initial up-front costs, the operating cash flows, and the terminal cash flows) at the company's cost of capital (WACC) . Which of the following factors should the CFO include when estimating the relevant cash flows?

• A) Any sunk costs associated with the project.
• B) Any interest expenses associated with the project.
• C) Any opportunity costs associated with the project.
• D) Answers b and c are correct.
• E) All of the answers above are correct.

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Definitions:

Credits

Entries on the right side of a double-entry bookkeeping system that increase liabilities, equity, or revenue accounts, or decrease asset or expense accounts.

Double-entry Accounting

An accounting system in which every transaction is recorded in at least two accounts, ensuring the accounting equation remains balanced.

Journal Entry

A record in accounting that represents every single transaction made by a company, detailing the financial activities.

Debits

Entries on the left side of a double-entry bookkeeping system that increase asset or expense accounts, or decrease liability, equity, or revenue accounts.