Answer (A) is correct . An opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. In capital budgeting, the most basic application of this concept is the desire to place the company’s limited funds in the most promising capital project(s).
Answer (B) is incorrect because A sunk cost is one that is either already paid or irrevocably committed to incur. Because it is unavoidable and will therefore not vary with the option chosen, it is not relevant to future decisions.
Answer (C) is incorrect because An incremental cash flow is the difference in cash received or disbursed resulting from selecting one option instead of another.
Answer (D) is incorrect because Net initial investment is one of the three categories of relevant cash flows.
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