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1. Problem 12.01 (Required Investment) 25% b. The company spent and expensed $15,000 on research related to the project last year. Would this change your
1. Problem 12.01 (Required Investment) 25% b. The company spent and expensed $15,000 on research related to the project last year. Would this change your answer? Explain. I. No, last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. II. Yes, the cost of research is an incremental cash flow and should be included in the analysis. III. Yes, but only the tax effect of the research expenses should be included in the analysis. IV. No, last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. V. No, last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. III. The potential sale of the building represents an externality and therefore should not be charged against the project. IV. The potential sale of the building represents a real option and therefore should be charged against the project. V. The potential sale of the building represents a real option and therefore should not be charged against the project
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