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In calculating the cash flow to be used in NPV of a new project ( branch office expansion) ,which of the following costs are relevant;
Direct operating cost
Indirect operating cost
Finance charge
Depreciation
Administration cost
Head office costHave you not watched my free lectures on this (the lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well).
Depreciation is never relevant because it is not a cash flow. Finance charge (i.e. interest) is never relevant because it is accounting for in the calculation of the WACC.
Direct costs are always relevant because they are extra cash flows.
The others may or may not be relevant depending on whether there is an additional cash flow as a result of doing the new project.
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