My question is related to a case known as Zeta Mining: Walking the dragline, but I think it would be too time consuming to go through the details. What I'm looking for is more just to get my thinking straight in principle with regards to concepts like incremental cash flows, relevant cash flows, opportunity costs and net expenses.
Some background: In the case a company has to run a 5-year project where a mine site is prepared for mining. Not running the project is not an option. This 5-year preparatory project can be done either with
a) the company's own equipment (smaller operative costs) OR
b) with a subcontractor who would do the work manually (and with larger operative costs). If option b should be chosen, the own piece of equipment can be sold which would incur a positive cash flow.
There is no revenue information available, so the decision between a and b must be made on the basis of minimizing the net present value of net costs (=gross costs - tax break). All cost information is available.
The case explicitly mentions that an incremental approach should be used. I understand what incremental analysis is in a typical case, but it is not very clear how to apply that principle in this case, e.g. with only cost information available. I also reckon that the opportunity cost of the equipment might be relevant here, but am unsure how to incorporate it in the analysis. I can of course provide some more details about the options and their costs, if that should be needed.
Do you think you could help me with this (at this stage rather conceptual) question?