You want to use a building your company owns to develop a new investment opportu

Question

You want to use a building your company owns to develop a new investment opportunity. You have checked with property management in your company, and have consulted a few commercial brokers. The indication is that there is no demand from outsiders at this time to rent the building since the market is currently in a situation of excess capacity for building space. What best describes how this should be treated in your preparation relevant cash flows for your new investment?

a. Your project should not be charged for using the space since there is no ready market to rent it out. It is a sunk cost.

Your project should not be charged because the building is an opportunity cost.

c. Your project should be charged for using the building since its a sunk cost

d. Your project should be charged since this would be an appropriate allocation of overhead.

a. Your project should not be charged for using the space since there is no ready market to rent it out. It is a sunk cost.

Your project should not be charged because the building is an opportunity cost.

c. Your project should be charged for using the building since its a sunk cost

d. Your project should be charged since this would be an appropriate allocation of overhead.

Explanation / Answer

The correct answer should be option a that is Your project should not be charged for using the space since there is no ready market to rent it out. It is a sunk cost.

Explanation:

Since there is no demand from outsiders as a result there will be no investment to be shown as no investment is made. Hence, no charges can be shown for this investment.

Hence, the correct option is A.

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