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When calculating the operating cash flows for a project, what do we do with sunk costs? Why? Which cash flows are relevant for inclusion in
When calculating the operating cash flows for a project, what do we do with sunk costs? Why?
Which cash flows are relevant for inclusion in capital project consideration?
Which of these costs should be included in evaluating a project that needs space to hold the work-in-progress inventory:
- A warehouse that will need to be built for $1 million.
- A warehouse that is already owned by the company, but is currently being rented to another firm for $5,000/month. If the project is undertaken, this lease arrangement will need to be terminated.
- A warehouse that is currently sitting idle. The economy is such that there are many underused warehouses, making a leasing deal questionable.
- A warehouse that is currently being used for another project. This other project would need to be adjusted at a cost of $100,000 to use less space.
- A warehouse that was built for another project for $1 million, but has enough space remaining (about 50% of total capacity) to house the new project. It would be inconvenient to lease this space to another company.
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