The Correct Method to Handle Overhead Costs in Capital Budgeting

question 77

Multiple Choice

The correct method to handle overhead costs in capital budgeting is to:

• A) allocate a portion to each project.
• B) allocate them to projects with the highest NPVs.
• C) ignore all except incremental amounts.
• D) ignore them in all cases.

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Definitions:

Subscription Price

The cost charged to subscribe to a service or investment, such as a magazine subscription or the price to subscribe to shares in a rights issue.

Market Price

The marketplace value at this time for an asset or service.

Underwriting Fee

A fee charged by underwriters for assessing, guaranteeing, and distributing a new issue of securities to the public.

Common Stock

A type of ownership in a corporation that grants holders voting rights and a share in the company’s profits via dividends.