Which of the Following Cash Flows Should Be Included as Incremental

question 120

Multiple Choice

Which of the following cash flows should be included as incremental costs when evaluating capital projects?

• A)A new security system will reduce shoplifting losses by $50,000 per year.
• B)New equipment associated with the project will increase depreciation expense by $300,000 per year.
• C)Interest on construction loans will increase interest expense by $225,000 per year.
• D)The new project will occupy about 5% of the Chief Operating Officer's time,so 5% of her salary should be included.

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Definitions:

Estimated Useful Life

Estimated useful life is the expected time period during which an asset is useful to the owner for its intended purpose.

Revaluation Surplus

An increase in the value of an asset that is reflected on the company's balance sheet when the asset is revalued to its current market value, leading to an appreciation in the asset's worth that is not realized through sales.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the IASB that aims at making global financial statements more comparable.

Statement of Financial Position

Another term for the balance sheet, detailing a company's assets, liabilities, and equity at a specific point in time.