Which of the following statements about the opportunity cost associated with a capital budgeting project is correct?
A. A project's opportunity cost is a cash outlay that the firm has already paid; therefore, it should not be included in a capital budgeting analysis.
B. The terms sunk cost and opportunity cost generally are used interchangeably.
C. A project's opportunity cost is the return (cash flow) that will not be earned (generated) if funds are invested in a particular capital budgeting project.
D. A project's opportunity cost is not a relevant cash flow, therefore it should not be included in the capital budgeting analysis.
E. A project's opportunity cost reflects the change in a firm's net cash flow that is attributable to purchasing the project.
Answer: C
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