Which of the Following Statements About the Opportunity Cost Associated

question 21

Multiple Choice

Which of the following statements about the opportunity cost associated with a capital budgeting project is correct?

• A)A project's opportunity cost is a cash outlay that the firm has already paid; therefore, it should not be included in a capital budgeting analysis.
• B)The terms sunk cost and opportunity cost generally are used interchangeably.
• C)A project's opportunity cost is the return (cash flow) that will not be earned (generated) if funds are invested in a particular capital budgeting project.
• D)A project's opportunity cost is not a relevant cash flow, therefore it should not be included in the capital budgeting analysis.
• E)A project's opportunity cost reflects the change in a firm's net cash flow that is attributable to purchasing the project.

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Definitions:

Unit Variable Cost

The variable cost incurred to produce one unit of product, including direct materials, direct labor, and variable manufacturing overhead.

Monthly Sales

The total revenue generated from the sales of products or services within a month.

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding income and expenses from unusual or non-operational activities.

Break-even Point

The level of production or sales at which total costs equal total revenues, resulting in no profit or loss.