15.3 Factors affecting project appraisal

Question 1

What is a “relevant factor” in project appraisal? Give examples.

Answer 1

Factors vital for making investment decisions, including:

• future costs
• incremental costs
• cash flows
• finance costs
• timing of returns
• working capital
• taxation
• future inflation

Question 2

What is a “non-relevant factor” in project appraisal? Give examples.

Answer 2

Those factors which are irrelevant for project decision making:

• sunk costs
• committed costs
• noncash items
• allocated costs