Question
9. When evaluating a new project, the firm should consider all of the following factors except: a. Changes in working capital attributable to the project.
9. When evaluating a new project, the firm should consider all of the following factors except:
a. Changes in working capital attributable to the project.
b. Previous expenditures associated with a market test to determine the feasibility of the project, if the expenditures have been expensed for tax purposes.
c. The current market value of any equipment to be replaced.
d. The resulting difference in depreciation expense if the project involves replacement.
e. All of the statements above should be considered.
11. Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?
| Revenues from an existing product would be lost as a result of customers switching to the new product. |
| Shipping and installation costs associated with a machine that would be used to produce the new product. |
| The cost of a study relating to the market for the new product that was completed last year. The results of this research were positive, and they led to the tentative decision to go ahead with the new product. The cost of the research was incurred and expensed for tax purposes last year. |
| It is learned that land the company owns and would use for the new project, if it is accepted, could be sold to another firm. |
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