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:

Capital Projects

Long-term investment projects undertaken by a business or organization, typically involving the development or maintenance of infrastructure.

Management's Expectations

The forecasts or outlooks on future business performance, operational results, or financial conditions as projected by a company's management.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of maximization of shareholder wealth.

Capital Markets

Financial markets for buying and selling equity and debt instruments, which channel savings and investment between suppliers of capital and users of capital.