Which One of the Following Would NOT Result in Incremental

question 29

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) A firm has a parcel of land that can be used for a new plant site or be sold, rented, or used for agricultural purposes.
• B) A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm’s current products.
• C) A firm must obtain new equipment for the project, and $1 million is required for shipping and installing the new machinery.
• D) A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected.
• E) A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm’s other products.

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Definitions:

Macaws

Large, brightly colored parrots with long tails and powerful beaks, native to Central and South America.

Monopoly

A market structure characterized by a single seller dominating the entire market, often resulting in limited consumer choice and higher prices.

Elastic

Describes a situation where the demand or supply for a product or service significantly changes in response to price changes.

Marginal Revenue

The supplementary earnings obtained by selling an extra unit of a product or service.