Question
If a project uses company-owned land that could have been sold, how should that land be treated in the analysis?
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Answer
Include its forgone sale value as an opportunity cost.
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Question
Why must cannibalization of an existing product be included in a new project's cash flows?
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Answer
It is a negative externality affecting firmwide incremental cash flows.
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Question
If a new project creates synergies for another division, is that effect ignored or included?
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Answer
Included as a positive externality.
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Question
What is incorrect about discounting a risky project at the same rate as a low-risk maintenance project?
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Answer
It ignores risk differences; riskier projects need higher discount rates.
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