Financing costs are not an incremental cash flow for capital budgeting purposes

Financing costs are not an incremental cash flow for

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Financing costs are not an incremental cash flow for capital budgeting purposes. Financing costs are a direct consequence of how the project is financed, not whether the project is economically viable. Financing costs are embedded in the required rate of return used to discount project cash flows.Difficulty level: DifficultTopic: Financing Costs89. Should opportunity costs be included in capital budgeting analysis? Why or why not? Opportunity costs represent what could have been earned if the investment had not been taken. By accepting the project in question, the firm foregoes other opportunities for that asset. The lost revenues, including the market value of assets that could otherwise be sold, are the opportunity costs and must be accounted for in the cash flow analysis.Difficulty level: DifficultTopic: Opportunity Cost8-85
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