Which One of the Following Statements Is Correct

question 4

Multiple Choice

Which one of the following statements is correct?

• A) Project analysis should only include the cash flows which affect the statement of comprehensive income.
• B) A project can create a positive cash flow from operations without affecting the sales level of a firm.
• C) For the majority of projects that increase sales, there will be a cash outflow related to net working capital that occurs at the end of the project.
• D) Interest expense should always be included as a cash outflow when analyzing a project.
• E) The opportunity cost of a company-owned building that is going to be used in a new project should be included as a cash inflow to the project.

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Definitions:

Fixed Costs

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.

Contribution Margin Ratio

A financial metric that shows the percentage of revenue that exceeds variable costs, indicating how much revenue contributes to fixed costs and profits.

Margin of Safety

The difference between actual or expected sales and sales at the break-even point, indicating the cushion against losses.

Sales

The total amount of revenue generated from the selling of goods or services by a company during a specific period.