Question: Question 8 [13 Marks] 81 82 Operating cash flows, rather than accounting profits, are used in project analysis What is the basis for this emphasis

Question 8 [13 Marks] 81 82 Operating cash flows, rather than

Question 8 [13 Marks] 81 82 Operating cash flows, rather than accounting profits, are used in project analysis What is the basis for this emphasis on cash flows as opposed to net income? (4) Why is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward? (3) Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included (6) 83

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