When Evaluating the Cash Flows Associated with a Capital Budgeting

question 35

Multiple Choice

When evaluating the cash flows associated with a capital budgeting project, shipping and installation costs associated with the purchase of an asset, such as a lathe, are considered part of the:

• A) initial investment outlay because these expenses are effectively part of the asset's purchase price.
• B) incremental operating cash flows because shipping and installation costs represent expenses that have to be written off over the life of the asset.
• C) terminal cash flows, because these expenses aren't paid until the end of the asset's life.
• D) sunk costs because these expenses do not affect any current or future cash flows associated with investing in the asset.
• E) opportunity cost of the project because these costs are increasing the potential of the project.

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Definitions:

Classical Conditioning

A learning process in which an innate response to a potent stimulus comes to be elicited in response to a previously neutral stimulus.

Operant Conditioning

A method of learning that employs rewards and punishments for behavior, where an association is made between a behavior and a consequence for that behavior.

Gestation

The period of development from the fertilization of an ovum until birth in pregnant mammals, including humans.

Dishabituation

The renewal of attention to a stimulus following a change, after initial habituation (or decreased response) to the same or similar stimuli.