Final answer:
The correct statement is D. The correct statement is that incremental net operating profits after-tax should exclude the effects of financing costs. These costs are not included in NOPAT as it reflects operating profit without the impact of financing structure. Depreciation is included since it's an operating expense, and sunk costs are ignored as they are unrecoverable past expenditures.
Step-by-step explanation:
The correct statement regarding incremental net operating profits after-tax (NOPAT) is: D) Incremental net operating profits after-tax should exclude the effects of financing costs associated with a project.
NOPAT is meant to represent the profits a company would generate if it had no debt. The effects of financing costs, such as interest payments, are therefore not included in this calculation since they are not operating expenses but rather the result of the firm's financing decisions. Additionally, NOPAT should include the effects of depreciation costs since these are non-cash charges that reduce taxable income and reflect the cost of capital assets over time.
Sunk costs, by definition, are costs that have already been incurred and cannot be recovered, and thus should not affect future business decisions or financial analyses, including the assessment of incremental NOPAT.