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

question 48

Multiple Choice

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

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

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Definitions:

Tenant-Days

A measure used in real estate or hospitality to indicate the total number of days rented by all tenants over a given period.

Activity Variance

The difference between the actual and budgeted amount of activity, often used in variance analysis to identify and manage deviations in performance.

Direct Labor

The wages or costs associated with workers who are directly involved in the production of goods or services.

Activity Level

The volume of production or the rate of operations in a business activity.