What is meant by a standalone principal? What are opportunity costs and erosion, and do they...

What is meant by a standalone principal? What are opportunity costs and erosion, and do they affect the process of determining a proposed investment’s incremental cash flows?

Expert Solution

Stand alone principle is a principle that company should be deciding to accept certain project based upon the profitability of similar project with the similar risk.it is an investment approach that will advocated that the firm should be accepting or rejecting a project by comparing it with securities in the same asset class.

Erosion caused will be including any negative impact of the companies associated assets or cash flows and it will be the experience in regards to profit such as manufacturing equipment. Erosion will be also generally applying to longer-term downward trend in a company business and these should we recognise in the incremental cash flow because this will leading to decrease of cash flows.

Opportunity cost is the cost of sacrifice that has been made in order to achieve something other so it is cost of an alternate benefit which has been given away. Opportunity cost should be taken into consideration when evaluating of the project

jeff jeffy answered 2 years ago

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