Finance Test #3

the difference between a firm's cash flows with a project and those without the project; any and all changes in the firm's future cash flows that are a direct consequence of taking the project; should be included in the capital budgeting analysis because they are relevant

the assumption that evaluation of a project may be based on the project's incremental cash flows; allows us to analyze each project in isolation from the firm simply by focusing on incremental cash flows

a cost that has already been paid or incurred and can't be removed; has to be paid no matter what; SHOULD NOT be considered in an investment decision

the most valuable alternative that is given up if a particular investment is undertaken; what are we going to give up by accepting the project; costs of lost options; SHOULD be considered in an investment decision

the cash flows of a new project that come at the expense of a firm's existing projects; negative side effect; negative impact on the cash flows of an existing product from the introduction of a new product = lost profits; SHOULD be considered in an investment decision

(R - C) (1 -T) + Dt

the present vale of a project's costs calculated on an annual basis