Chapter Summaries
12.1 Identify incremental cash flows that are relevant to project valuation. (pgs. 374–377)
Summary:
The cash flows that are relevant to the valuation of an investment project are those that are incremental to the firm. Although this seems straightforward, identifying incremental cash flows can be very challenging; therefore, we offered the following guidelines and words of caution:
Sunk costs are not incremental cash flows. Sunk costs are one particular category of expenditures that frequently give rise to difficulty when evaluating an investment opportunity; they are expenditures that have already been made and cannot be undone if the project is not undertaken. By definition, such costs are not incremental to the decision ...
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