Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions:

Which of the following is a reason cash flows may differ from accounting income?

Depreciation is a tax$-$deductible expense but is not a cash outlay.

The total number of units sold will be different for accounting income and cash flows.

Ideally, capital budgeting analysis should take cash flows into accoun $$

Understanding the nature of projects

Capital budgeting analysis often involves decisions related to expansion projects and$/$or replacement projects. Based on your understanding of expansion and replacement projects, answer the following:

If a clothing store opens a second retail location on the other side of town, this project would be considered $\_$ project.

What are sunk costs?

Marston Manufacturing Co$.$ owns a warehouse that it is not currently using: It could sell the warehouse for $$300,000$ or use the warehouse in a new project. Should Marston Manufacturing Co$.$ include the value of the warehouse as part of the initial investment in the new project or treat the value of the warehouse as a sunk cost?

Yes, include the value of the warehouse as part of the initial investment in the new project

No$,$ treat the value of the warehouse as a sunk cost