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:

Theory of Mind

The ability to attribute mental states—beliefs, intents, desires, emotions—to oneself and others and to understand that others have beliefs and desires different from one's own.

Beliefs and Desires

The mental attitudes and inclinations that influence a person's motivations and actions.

Memory Capacity

The amount of information that can be held in a person's memory system at one time.

IQ

A measure of a person's intelligence as indicated by an intelligence test, representing a score derived from standardized assessments designed to test various aspects of cognitive ability.