The managers at Kordells Cords and Button shop are thinking of starting a sewing school. You are aware of the following information. Which of the following pieces of information are NOT relevant to determining whether to take the project? Why?

a. Starting the new school requires hiring new teachers which is expected to add $80,000 to the payroll.

b. The expected tax bill is 21% of income.

c. Classes are expected to increase sales of cords and buttons by $20,000.

d. Kordells cords would discontinue its existing in-house classes, which currently generate $16,000 in revenue.

e. Management at Kordells recently spent $12,000 to develop a curriculum for the proposed school.

Which of the following statements is CORRECT? Why?

a. If the project would have a favorable effect on other operations, then this is not an externality.

b. An externality is a situation where a project would have an adverse effect on some other part of the firms overall operations.

c. Externalities must be considered if the IRR method is used but not if the firm relies on the NPV method.

d. A good example of an externality is when Coca-Cola conducts taste tests before deciding whether to release a new beverage.

e. An externality is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project.