Question

When evaluating projects, we look at the incremental Cash Flow from operations. Which of the following principles support this statement.

	a.	Assume the investment is entirely financed
	b.	Include externalities of the project
	c.	Ignore opportunity costs
	d.	All of the above
	e.	A and B only

Answer 1

Option (e) i.e "A and B only" is the correct answer.

while evaluating projects, we assume that tge project is entirely financed so as to reach out at a rate (required return) which is to be earned for the project.

All externalities related to the projects are also required to be considered while evaluting the project.

We can not ignore opportunity cost of the project as , income forgone is as good as our cost of the project.

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