When Evaluating a New Project, Firms Should Include in the Projected

question 19

Multiple Choice

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

• A) Changes in net working capital attributable to the project.
• B) Previous expenditures associated with a market test to determine the feasibility of the project, provided those costs have been expensed for tax purposes.
• C) The value of a building owned by the firm that will be used for this project.
• D) A decline in the sales of an existing product, provided that decline is directly attributable to this project.
• E) The salvage value of assets used for the project that will be recovered at the end of the project's life.

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Definitions:

Scrap Value

The estimated residual value of an asset at the end of its useful life.

Manufacture Further

The process of conducting additional production activities intended to enhance the value or functionality of a product.

Incremental Cost

The additional cost associated with producing one more unit of a product or service.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, maintenance, and factory management salaries.