Capital Budgeting Must Be Placed on an Incremental Basis

question 95

Multiple Choice

Capital budgeting must be placed on an incremental basis.This means that ____ must be ignored and ____ must be considered.

• A) sunk cost; opportunity cost
• B) sunk cost; financing cost
• C) cannibalization; opportunity cost
• D) opportunity cost; net working capital

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Definitions:

Circular Flow Model

An economic model depicting the continuous, circular flow of goods, services, and money between households and businesses in an economy.

Households

Economic units consisting of all individuals who occupy a home, responsible for making consumption decisions.

Market System

In this model, the economic operations regarding investments, the scale of production, and the distribution strategy are guided by supply and demand laws, ensuring that the pricing of goods and services is freely determined through a system of unrestricted prices.

Business Risk

The potential for financial loss or failure that a business faces due to factors like market fluctuations, competition, and management decisions.