As a result sunk costs should not be included in a

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Unformatted text preview: cash flows relevant to the current decision. As a result, sunk costs should not be included in a project’s incremental cash flows. Opportunity costs are cash flows that could be realized from the best alternative use of an owned asset. They therefore represent cash flows that will not be realized as a result of employing that asset in the proposed project. Because of this, any opportunity costs should be included as cash outflows when one is determining a project’s incremental cash flows. Jankow Equipment is considering renewing its drill press X12, which it purchased 3 years earlier for $237,000, by retrofitting it with the computerized control system from an obsolete piece of equipment it owns. The obsolete equipment could be sold today for a high bid of $42,000, but without its computerized control system, it would be worth nothing. Jankow is in the process of estimating the labor CHAPTER 8 FOCUS ON PRACTICE Coors Brews Better Financial Performance As Coors Brewing Company grew from a local brewer to the number3 national brand, it we...
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