A Local Bank Is Contemplating Opening a New Branch Bank

question 72

Multiple Choice

A local bank is contemplating opening a new branch bank in a large superstore across town from their main office. It is estimated that the new branch will generate $20,000 after expenses each month. The manager wonders if all these revenues should be considered an incremental cash flow. Given this information, which of the following statements is correct?

• A) $20,000 is generated by the new branch bank and therefore it is an incremental cash flow.
• B) We would first need to assess the opportunity cost of placing a branch in a different location to answer this question.
• C) Some amount less than the $20,000 is incremental because of substitutionary effects.
• D) Some amount less than the $20,000 is incremental because of complementary effects.

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Definitions:

Multilateral Aid

Financial assistance provided by multiple governments or organizations to support development projects in other countries.

Nonprofit Organization

An entity that operates for the public or social benefit rather than to make a profit for its owners or shareholders.

Dambisa Moyo

An international economist and author known for her work on global economic trends and policies affecting economic development.

Foreign Aid

Involves the transfer of resources from one country to another, typically from developed to developing nations, aimed at promoting economic development and welfare.