Question
Side effects from investing in a project refer to cash flows from Blank______.
Multiple select question.
erosion effects
opportunity costs
sunk costs
beneficial spillover effects
Multiple select question.
erosion effects
opportunity costs
sunk costs
beneficial spillover effects
Answers
GPT-4o mini
When considering side effects from investing in a project, the relevant cash flows typically refer to:
1. **Erosion effects** - This term relates to the impact that a new project may have on the cash flows of existing projects or products. For instance, if a new product cannibalizes the sales of an existing product, the negative cash flows are considered erosion effects.
2. **Opportunity costs** - This refers to the potential benefits that are foregone when choosing one investment over another. Opportunity costs represent income or cash flows that could have been generated had resources been allocated to the next best alternative rather than the chosen project.
3. **Beneficial spillover effects** - This term refers to positive impacts that a project may have beyond its direct cash flows, such as creating additional revenue or benefits for other parts of the business or even for the community.
**Sunk costs**, however, are not relevant to side effects from investing since they represent costs that have already been incurred and cannot be recovered. These costs should not factor into the decision-making for new projects.
So, the correct choices would be:
- Erosion effects
- Opportunity costs
- Beneficial spillover effects
1. **Erosion effects** - This term relates to the impact that a new project may have on the cash flows of existing projects or products. For instance, if a new product cannibalizes the sales of an existing product, the negative cash flows are considered erosion effects.
2. **Opportunity costs** - This refers to the potential benefits that are foregone when choosing one investment over another. Opportunity costs represent income or cash flows that could have been generated had resources been allocated to the next best alternative rather than the chosen project.
3. **Beneficial spillover effects** - This term refers to positive impacts that a project may have beyond its direct cash flows, such as creating additional revenue or benefits for other parts of the business or even for the community.
**Sunk costs**, however, are not relevant to side effects from investing since they represent costs that have already been incurred and cannot be recovered. These costs should not factor into the decision-making for new projects.
So, the correct choices would be:
- Erosion effects
- Opportunity costs
- Beneficial spillover effects