Chapter 11.1, Problem 11.3RQ

Summary Introduction

To determine:

What effects do the sunk costs and the opportunity costs have on a project's net cash flows.

Introduction:

The cash flows are the total money being transferred into the business and transferred out of the business. They would affect the liquidity of the firm when they are being transferred either ways.

The sunk costs are the costs that have been already made by the company which cannot be recovered are known as the sunk costs. The opportunity cost is value of the next best alternative that te firm foregoes when making an investment decision.