Which of the Following Cash Flows Should Not Be Included

question 14

Multiple Choice

Which of the following cash flows should not be included as incremental costs or revenues when evaluating capital projects?

• A) A new security system will reduce shoplifting losses by $50,000 per year.
• B) Thirty percent of the sales of a new product will result from customers switching from the previous version of the product.
• C) Interest on construction loans will increase interest expense by $225,000 per year.
• D) The project will occupy space which is currently being rented to another business for $3,000 per month.

---

Definitions:

Financial Statements

Reports that provide an overview of a company's financial condition, including the balance sheet, income statement, and cash flow statement, at a particular point in time.

Common Dividends

Payments made to shareholders of a company's common stock, representing a portion of the company’s earnings distributed to its owners.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

EVA

Economic Value Added, a measure of a company's financial performance based on the residue wealth calculated by deducting its cost of capital from its operating profit.