Which of the following should be included in the calculation of cash flow for project evaluation?...
Which of the following should be included in the calculation of cash flow for project evaluation?
The investment in inventory that will be recovered at the end of the life of the project
The price paid for the land when it was purchased 5 years ago
A proportion of the electricity costs
The cost of the test market
The interest on the debt used to finance the project
Homework Answers
a) The investment in inventory that will be recovered at the end of the life of the project - Yes should be included since it will increase cash inflow
b) The price paid for the land when it was purchased 5 years ago- Should not be included .It is sunk cost and not relevant for calculation of cash flow
c) A proportion of the electricity costs- No should be included . It can be included only if there is incremental savings over existing cost due to new capital investment/project
d) The cost of the test market - Yes. It should be deducted from the revenue
e) The interest on the debt used to finance the project- Should not be included since the cost of capital will include debt cost
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Which of the following should be included in the calculation of
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