Question

what is opportunity cost? should it be included in the incremental cash flows? why or why not

Answer 1

Answer-

Opportunity cost is the cash inflows that a firm or company may lose by taking the project under consideration . This cah inflows generated by an asset the compny already have tht would be foregone if the project under consideration is undertaken. Opportunity coss are included in project costs.

Yes Opportuity costs are included in the incremental costs because incremental cost is the difference in total costs as the result of a change in some activity and are costs and they may be the relevant for certain short run decisions involving two alternatives. Incremental cash flows are changes in cash flows that will occur if the project is undertaken.