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.

---

Definitions:

Range

The difference between the highest and lowest values in a dataset, a simple measure of the spread or dispersion of the data points.

Standard Deviation

A statistical measure that quantifies the dispersion or spread of a set of data points.

Variance

A statistical measure of the dispersion of a set of data points in a data set.

Deviations

The differences between observed values and the average of those values within a dataset.