When dealing with decisions using Cost Benefit Analysis techniques it is very important to follow the proven principles. The health of your company and your reputation depend on it. If these rules are not followed then your decisions could be flawed.
Let's start, shall we?
Critical Item #1. Sunk Costs
Irrecoverable cash outlays that occurred prior to the evaluation of the project are excluded, only the present and future costs/benefits are assessed. You cannot go back in time to add in past costs, only deal in the current and the future, as best you can.
Critical Item #2. Arbitrary Accounting Cost/Income Allocations
Depreciation - Depreciation is not a cash item. It relates to cash expended on capital purchases in previo View the rest of this article
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