Rowell Company Spent $3 Million Two Years Ago to Build

question 58

Multiple Choice

Rowell 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. Rowell owns the building free and clear--there is no mortgage on it. Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) This is an example of an externality, because the existence of the building affects the cash flows for any new project that Rowell might consider.
• D) 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.
• E) 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.

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Definitions:

Duration Per Occurrence

A type of duration recording that involves recording the length of time per episode that a student engages in a target behavior.

Average Duration

A type of duration recording that produces only one number to graph. In this approach, the durations of each episode of a target behavior are added together and divided into the total number of times the behavior occurred.

Dead Man's Test

A principle in behavior analysis suggesting that if a dead man can do it, it’s not behavior; emphasizing the importance of observable and measurable actions.

Stranger Test

A measure of generalization of learned behaviors to see if the behaviors occur in the presence of someone unfamiliar.