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Hello professor.
Hope you’re in good health. I want to ask about the treatment of opportunity costs & indirect, activity based costs in the calculations of NPV/APV. Do we take these cost into consideration or do we ignore them?
Further any advice regarding P4 exam? Have a nice day!
Warm Regards,
Opportunity costs are certainly taken into account in arriving at the cash flows.
With regard to indirect costs (overheads) it depends on whether the total cost of the company is increasing. If it is then the extra cost is relevant, if it is not then there is no cash flow. (It depends on the wording of the question. If the costs have been allocated using ABC then it would probably mean that the total is not going to change, and they are therefore irrelevant, but again it depends on the exact wording of the question.)
If you are unsure about any specific questions then obviously ask in this forum.
Have you watched all of my free lectures for P4?
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