7 Take account of any opportunity costs. How does the project impact on the use of existing resources? Will some other cash flows, actual or potential, be lost as a result of investing in this project?

For example, a firm may own some land, currently unused, on which it proposes to build a new factory. The resource is currently idle, but potentially the site could be put to alternative uses (it could be sold or rented out) which would produce additional cash flows for the firm. If the factory development was rejected, these alternative cash flows could be raised, they must therefore be reflected in the appraisal of the new factory project.