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CHAPTER 9 SUMMARY OF THE COURSE CONTENT The first and the most important step, is to decide which cash flows are relevant and which are not. The incremental cash flows for project evaluation consist of any and all changes in the firm’s future cash flows that are a direct consequence of taking the project. Stand alone principle: The assumption that evaluation of a project may be based on the project’s incremental cash flows. Opportunity cost: the most valuable alternative that is given up if a particular investment is undertaken. Side Effects: Incremental cash flows for a project include all the changes in the firm’s future cash flows. It would not be unusual for a project to have side, or spillover, effects, both good and bad. In accounting for erosion, it is important to recognize that any sales lost as a result of our launching a new product might be lost anyway because of future competition. Erosion in only relevant when the sales would not otherwise be lost.
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  • Fall '09
  • Valuation, future cash flows, incremental cash flows

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