To help distinguish opportunity costs and incremental cash flows, consider these four examples:
1) A firm spends $100,000 on a project, when it could invest the money and earn a 10% return.
2) A firm is renting out office space for $5,000/month, but will use the office space for a new project.
3) A firm will hire a new employee for $100,000/year to head up a new project.
4) A firm paid $100,000 five years ago, but the land is unusable for the current project.
Which of these are opportunity costs? Which are incremental cash flows?