Bellington,Inc

question 81

Multiple Choice

Bellington,Inc.is considering the purchase of new,sophisticated machinery for a special three-year project.The machinery requires a special lubricating oil that probably will never be used,but must be available at all times should the machine break down.Bellington purchases $2,000 of lubricating oil to keep on hand just in case it is needed.At the end of the three-year project,it is expected the lubricating oil can be sold back to the distributor for $2,000.Which of the following statements is MOST correct?

• A) The lubricating oil is a sunk cost that should be excluded from the analysis.
• B) The $2,000 for the lubricating oil should be excluded from the analysis because it is recovered at the end of three years, so the final cost is zero.
• C) The $2,000 represents an additional investment in working capital that should be included in the capital budgeting analysis.
• D) The $2,000 for lubricating oil is simply an accounting entry and does not represent a real cash flow.

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Definitions:

Tort Law

The area of law dealing with civil wrongs, providing remedies for injury or damages caused by one party to another.

Compensating

The act of providing payment or remuneration to offset a loss, damage, or to make up for harm suffered.

Intentional Torts

Deliberate acts committed by one person that result in harm or injury to another.

Assault

An act that creates an apprehension in someone of an imminent, harmful, or offensive contact, potentially leading to criminal or civil liability.