Which of the Following Statements Is CORRECT

question 30

Multiple Choice

Which of the following statements is CORRECT?

• A) A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the project.
• B) A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project.
• C) Sunk costs were formerly hard to deal with but now that the NPV method is widely used, it is possible to simply include sunk costs in the cash flows and then calculate the PV of the project.
• D) A good example of a sunk cost is a situation where Home Depot opens a new store, and that leads to a decline in sales of one of the firm's existing stores.
• E) A sunk cost is any cost that must be expended in order to complete a project and bring it into operation.

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Definitions:

Stock Dividend

A distribution of additional shares to shareholders at no extra cost, based on the number of shares they already own.

Corporation's Assets

Resources owned by a corporation that have economic value and can contribute to the company's future income and benefits.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting liabilities, representing ownership interest held by shareholders.

Small Stock Dividends

Dividends paid by a company to its shareholders in the form of additional shares, typically representing less than 20-25% of the existing shares’ total value.