Question

Since opportunity costs are not actual cash flows, they should not be included when we estimate cash flows for a project.

True

False

Answer 1

false, though we caonsider only cash in estimate cash flows for a current project but indirectly we consider the value of forgone value of the cash value. we consider the foregone cash flow by way of discount rate. This is the minimum rate we expect to earn from other alternative in the market easily. Therefore this earning opportunity can be encashed if we do not consider the present project. We require that minimum cash inflow from the present project that much from the foregone project. so it can be said that in way of discount factor we consider the foregone cash flow value in the present project.