Management Is Considering Two Alternatives

question 167

Multiple Choice

Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice. Which of the following statements is correct about relevant costs and relevant revenues.

• A) The sunk cost of $75,000 is relevant
• B) The projected revenues are relevant to the decision
• C) The initial investment of $250,000, the projected revenues, and the projected costs are all relevant
• D) The only relevant item are the costs as they differ between alternatives

---

Definitions:

Operating Activities

Activities directly related to a company's core business operations, including income-earning endeavors and other functions central to its purpose.

Statement Of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, showing how it raises and spends cash.

Cash Received

The actual inflow of cash into a business from various sources such as sales, financing, or investment activities.

Interest

The cost of borrowing money or the return on invested funds, usually expressed as an annual percentage rate.