A Local Bank Is Contemplating Opening a New Branch Bank

question 72

Multiple Choice

A local bank is contemplating opening a new branch bank in a large superstore across town from their main office. It is estimated that the new branch will generate $20,000 after expenses each month. The manager wonders if all these revenues should be considered an incremental cash flow. Given this information, which of the following statements is correct?

• A) $20,000 is generated by the new branch bank and therefore it is an incremental cash flow.
• B) We would first need to assess the opportunity cost of placing a branch in a different location to answer this question.
• C) Some amount less than the $20,000 is incremental because of substitutionary effects.
• D) Some amount less than the $20,000 is incremental because of complementary effects.

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