- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 3. Capital Allocation Principles and Pitfalls
CFA Practice Question
Opportunity costs should not be included, as they are missed opportunities. True or False?
Correct Answer: False
User Contributed Comments 4
| User | Comment |
|---|---|
| thekapila | They are subtracted while detrmining incremental cash flows. |
| MRSLETS | The 'missed opportunity' is a costs to the firm taking a project instead of doing something else with the capital. |
| johntan1979 | It is subtracted, but the reasoning in the question is wrong. It is not a missed opportunity. It is the cost of any activity measured in terms of the value of the next best alternative forgone (not chosen). |
| johntan1979 | Sorry, to correct previous statement, the reasoning is correct. It is a missed opportunity. The reason why it is FALSE is because it affects incremental cash flow, hence SHOULD be included. |