Section outline

  • For project valuation, we are interested in the incremental NCFs—the NCFs that are caused by a specific investment decision. In reality, these incremental cash flows are not always easy to identify, as many projects are not "green field" and have significant interdependencies with other projects. This section therefore addresses the main challenges in the estimation of incremental cash flows: Synergies with other projects, opportunity costs of the used resources, the treatment of overhead expenses, transfer pricing, and consulting fees, as well as the challenges surrounding the so-called sunk costs.

    • This section's reading assignment and review questions are listed below.