Unformatted text preview: 000 cost of drill press X12 is a sunk cost
because it represents an earlier cash outlay. It would not be included as a cash outflow when determining the cash flows relevant to the retrofit decision. Although
Jankow owns the obsolete piece of equipment, the proposed use of its computerized control system represents an opportunity cost of $42,000—the highest price
at which it could be sold today. This opportunity cost would be included as a cash
outflow associated with using the computerized control system. International Capital Budgeting
and Long-Term Investments
Although the same basic capital budgeting principles are used for domestic and
international projects, several additional factors must be addressed in evaluating
foreign investment opportunities. International capital budgeting differs from the
domestic version because (1) cash outflows and inflows occur in a foreign currency, and (2) foreign investments entail potentially significant political risk. Both
of these risks can be minimized through careful planning. 364 PART 3 Long-Term Investment Decisions foreign direct inve...
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This document was uploaded on 01/19/2014.
- Fall '13