25. When evaluating the cash flows associated with a capital budgeting project,

Question

25. When evaluating the cash flows associated with a capital budgeting project, shipping and installation costs associated with the purchase of an asset, such as a lathe, are considered part of e: a. initial investment outlay because these expenses are effectively part of the asset's purchase price b. incremental operating cash flows because shipping and installation costs represent expenses that have to be written off over the life of the asset. c. terminal cash flows, because these expenses aren't paid until the end of the asset's life d. sunk costs because these expenses do not affect any current or future cash flows associated with investing in the asset. e. opportunity cost of the project because these costs are increasing the potential of the project.

Explanation / Answer

The answer is a.

The purchase of an asset is incomplete without shipping and installation costs , as these are necessary to bring the asset into use.

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