A Company Is Considering a New Project

question 1

Multiple Choice

A company is considering a new project.The CFO plans to calculate the project's NPV by estimating the relevant cash flows for each year of the project's life (the initial investment cost,the annual operating cash flows,and the terminal cash flow) ,then discounting those cash flows at the company's WACC.Which factor should the CFO include in the cash flows when estimating the relevant cash flows?

• A)all interest expenses on debt used to help finance the project
• B)the investment in working capital required to operate the project, even if that investment will be recovered at the end of the project's life
• C)sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year
• D)effects of the project on other divisions of the firm, but only if those effects lower the direct cash flows of the project

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Definitions:

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