b. The company spent and expensed $15;000 on resenrch related to the profect last year. Would this change your answer? Explain. 1. 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 onalysis. 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 thould be included in the analysisi IV. No, last year's expenditure thould 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 itivertment citiay. V. No, last year's expenditure is considered an oppertunty cost and does not represent an incrementat cash fow. Hence, it thould not be inciuded in the analysit. c. Suppose the company plans to use a building that it owns to howse the profect. The building could be sold for 12 milition after taxes and reat estate commissione. How would that fact affect your anwer? 1. The potential sale of the bullding represents an epportunity cost of conducting the project in that building. Therefore, the possibie after-tax saie price must tan charged agsinst the project as a cost. I1. The potential sole of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible before-tax sale price must be charged against the project as a cost. III. The potential sale of the builing represents an externality and therefore should not be charged against the project. IV. The potential sale of the bullding represents a real option and therefore should be charged against the project. v. The potential saie of the building represents a real option and theiefore should not be charged against the project