If a Project Is Being Evaluated Three Years After It

question 191

Multiple Choice

If a project is being evaluated three years after it had started, how should the costs of the project from the three previous years be considered in deciding whether to continue the project?

• A)The costs should be incorporated as cash flows in evaluating whether the project should continue.
• B)These costs should not be included in the review of the project because the costs are sunk costs.
• C)These costs should be considered to demonstrate how much money the firm has already lost regardless of revenue.
• D)The previous costs and revenues should be incorporated into the cash flow stream in evaluating the future of the project.

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Definitions:

Depreciation Expense

A technique in accounting that involves spreading out the expense of a physical asset over its expected lifespan.

Depreciation Expense

The allocated cost of an asset over its useful life as an expense in accounting.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been depreciated over the time it has been in use.