Which of the Following Statements About Capital Budgeting Analyses Is

question 14

Multiple Choice

Which of the following statements about capital budgeting analyses is correct?

• A)The externalities associated with a project represent important marginal cash flows that should be included in the capital budgeting analysis.
• B)Only incremental cash flows, which are the cash flows that will change if a project is purchased, should be included in capital budgeting analyses.
• C)The term incremental cash flows refers to only the marginal expected cash inflows, not the outflows, associated with a capital budgeting project.
• D)Sunk costs often affect accept/reject decisions and, therefore, they should be included in the estimation of the projects' incremental cash flows.
• E)A project's opportunity cost does not affect its expected cash flows, and, therefore, should not be included in the estimation of the incremental cash flows.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual units of production, based on a particular activity base.

Machine-hours

A measure of the time that machines are operating, often used as a basis for allocating manufacturing overhead costs.

Direct Materials Cost

The cost of raw materials and components that are directly used in the production of a product.

Direct Labor-hours

Direct labor-hours are the total time workers spend on producing a particular unit of goods or services.