Which One of the Following Would NOT Result in Incremental

question 73

Multiple Choice

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

• A) Revenues from an existing product would be lost as a result of customers switching to the new product.
• B) Shipping and installation costs associated with a machine that would be used to produce the new product.
• C) The cost of a study relating to the market for the new product that was completed last year.The results of this research were positive, and they led to the tentative decision to go ahead with the new product.The cost of the research was incurred and expensed for tax purposes last year.
• D) It is learned that land the company owns and would use for the new project, if it is accepted, could be sold to another firm.
• E) Using some of the firm's high-quality factory floor space that is currently unused to produce the proposed new product.This space could be used for other products if it is not used for the project under consideration.

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Definitions:

Indirect Expenses

Costs that are not directly traceable to a specific product or operation, such as utilities or administrative salaries.

Secondary Equity Offering

The issuance of new stock for sale to the public by a company that has already undergone an initial public offering (IPO).

Underpriced

A situation where an asset is selling for less than its perceived or intrinsic value.