Management Is Considering Two Alternatives

question 167

Multiple Choice

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.

• A) The sunk cost of $75,000 is relevant
• B) The projected revenues are relevant to the decision
• C) The initial investment of $250,000, the projected revenues, and the projected costs are all relevant
• D) The only relevant item are the costs as they differ between alternatives

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Definitions:

Articles of Incorporation

The document filed with a governmental body to legally document the creation of a corporation, outlining its structure, purpose, and regulations.

Authorized Shares

The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.

Incorporator

An individual or entity that establishes a corporation by filing the necessary legal documents with a governmental body.

Corporate Attributes

Characteristics that define a corporation, such as legal identity, transferability of shares, and perpetual succession.