If the Capital Budgeting Decision Includes a Replacement Analysis, Then

question 106

Multiple Choice

If the capital budgeting decision includes a replacement analysis, then

• A) a gain from the sale of the old asset will represent a tax savings inflow.
• B) only incremental cash flows should be considered.
• C) the sale price and tax savings will increase the cash inflows throughout the asset's life.
• D) net present value can no longer be measured in replacement analysis.

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Definitions:

Contribution Margin

The amount of revenue remaining after deducting variable costs, used to cover fixed costs and contribute to profit.

Variable Expenses

Expenditures that fluctuate in alignment with the quantity of production or sales figures, like labor costs and materials used.

Traceable Fixed Expenses

Fixed expenses that can be directly linked to a specific segment of a business and would disappear if the segment did not exist.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, indicating how much contributes to covering fixed costs and generating profit.