While Developing a New Product Line, Cook Company Spent $3

question 2

Multiple Choice

While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product.It then decided not to go forward with the project, so the building is available for sale or for a new product.Cook owns the building free and clear⎯there is no mortgage on it.Which of the following statements is CORRECT?

• A) If the building could be sold, then the after-tax proceeds that would be generated by any such sale should be charged as a cost to any new project that would use it.
• B) This is an example of an externality, because the very existence of the building affects the cash flows for any new project that Rowell might consider.
• C) Since the building was built in the past, its cost is a sunk cost and thus need not be considered when new projects are being evaluated, even if it would be used by those new projects.
• D) If there is a mortgage loan on the building, then the interest on that loan would have to be charged to any new project that used the building.
• E) Since the building has been paid for, it can be used by another project with no additional cost.Therefore, it should not be reflected in the cash flows for any new project.

Appreciate the value of on-the-job training for updating and acquiring new knowledge.

Identify various elements of employee compensation beyond wages and salaries.

Understand the benefits of flexible benefit packages, including tax advantages.

Know the best practices for hiring family members according to Peter Drucker.

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Definitions:

Culture's Standards

The measures and norms that are adopted and recognized within a culture to guide behavior, practices, and evaluations of what is deemed acceptable or desirable.

Socially Disapproved

Actions or behaviors that are generally condemned or regarded negatively by society.

Behaviors

The way a person or group behaves or responds when faced with outside or inside forces.

Socialization

The process by which individuals learn and internalize the values, beliefs, and norms of their society, becoming functioning members of that society.