Which of the Following Statements Is Correct

question 10

Multiple Choice

Which of the following statements is correct?

• A)A firm has estimated that it will save $40,000 in utility expenses annually if it replaces an old machine with a new, more technologically advanced machine. The $40,000 is a relevant cash flow that should be included in the computation of the machine's supplemental operating cash flows.
• B)Inflation does not need to be considered in capital budgeting analyses.
• C)The tax deduction associated with a project's depreciation expense is not a relevant cash flow in capital budgeting analyses.
• D)The sunk costs associated with a project are relevant cash flows that should be included in capital budgeting analyses.
• E)The cost of advertising a product that the firm currently produces and sells is a relevant cash flow that should be included in the evaluation of a new capital budgeting project.

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Definitions:

International Fisher Effect

An economic theory stating that the difference in nominal interest rates between two countries is proportional to the expected change in the exchange rate between their currencies.

Expected Changes

Expected changes refer to anticipated modifications in conditions or variables, often used in forecasting scenarios in finance or economics.