1. Suppose Walker Publishing Company is considering bringing out a new finance text whose projected revenues include some revenues that will be taken away from another of Walker's books. The lost sales on the older book are a sunk cost and as such should not be considered in the analysis for the new book.
answer
False
question
1. Which of the following is NOT a relevant cash flow and thus should NOT be reflected in the analysis of a capital budgeting project?
answer
a. Sunk costs that have been expensed for tax purposes.
question
1. Which of the following statements is CORRECT?
answer
a. A sunk cost 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.
question
example of sunk costs
answer
a. A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed that cost for tax purposes, and now is deciding whether to go forward with the project.
question
1. Which of the following rules is CORRECT for capital budgeting analysis?
answer
a. Sunk costs are not included in the annual cash flows, but they must be deducted from the PV of the project's other costs when reaching the accept/reject decision.
Haven't found what you need?
Search for quizzes and test answers now
Quizzes.studymoose.com uses cookies. By continuing you agree to our cookie policy
