1) Operating cash flows, rather than accounting profits, are used in project analysis. What is

the basis for this emphasis on cash flows as opposed to net income.

2) Explain why sunk costs should not be included in a capital budgeting analysis but

opportunity costs and externalities should be included.

3) Explain how net operating working capital is recovered at the end of a projects life and

why it is included in a capital budgeting analysis.

4) Why are interest charges not deducted when a projects cash flows are calculated for use in

a capital budgeting analysis?