Question

which of the following factors should be included in the cash flows used to estimate a projects npv? all costs associated with the project that have been incurred prior to the time the analysis is being conducted. interest on funds borrowed to help finance the project. the end-of-project recovery of any additional net operating working capital required to operate the project. cannibalization effects, but only if those effects increase the projects projected cash flows. expenditures to date on research and development related to the project, provided those costs have already been expensed for tax purposes.

Explanation:

• Sunk costs (like prior project costs, R&D expensed for tax) are excluded from NPV cash flows, so options with prior costs or expensed R&D are wrong.
• Interest on financing is incorporated in the discount rate (WACC), not in cash flows, so that option is wrong.
• Cannibalization effects (whether positive or negative) should be included, but the option limits it to only when increasing cash flows, which is incorrect.
• Net operating working capital is invested at the start and recovered at the end of the project, so the end - of - project recovery of additional net operating working capital is a relevant cash flow for NPV.

Answer:

The end - of - project recovery of any additional net operating working capital required to operate the project.