The cash flows of a project should:

A) Be computed on a pre-tax basis.
B) Include all sunk costs and opportunity costs.
C) Include all incremental costs, including opportunity costs.
D) Be applied to the year when the related expense or income is recognized by GAAP.
E) Include all financing costs related to new debt acquired to finance the project.

Sunk Costs

Expenditures that have already been incurred and cannot be recovered.

Incremental Costs

Expenses that will be incurred only as a result of undertaking a specific action.

GAAP

Generally Accepted Accounting Principles; a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.