Which One of the Following Would NOT Result in Incremental

question 52

Multiple Choice

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

• A) Using some of the firm's high-quality factory floor space that is currently unused to produce the proposed new product.This space could be used for other products if it is not used for the project under consideration.
• B) Revenues from an existing product would be lost as a result of customers switching to the new product.
• C) Shipping and installation costs associated with a machine that would be used to produce the new product.
• D) The cost of a study relating to the market for the new product that was completed last year.The results of this research were positive,and they led to the tentative decision to go ahead with the new product.The cost of the research was incurred and expensed for tax purposes last year.
• E) It is learned that land the company owns and would use for the new project,if it is accepted,could be sold to another firm.

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Definitions:

Substitute Input

An alternative resource or material that can be used in place of another in the production process to achieve the same outcome.

Labor Resource Market

A market where individuals offer their labor or services for wages to employers who are in need of those services.

Output Effect

The change in total revenue generated by selling an additional unit of a product or service.

Substitution Effect

The economic understanding that as prices rise or income decreases, consumers will replace more expensive items with cheaper alternatives.