Which of the following is not considered a relevant cash flow when deter- mining

Question

Which of the following is not considered a relevant cash flow when deter- mining incremental cash flows for a new project?

a. The use of floor space that is currently unused but available for any new project.

b. Revenues from an existing service that would be lost if the new project was initiated.

c. Shipping and installation costs associated with the new project.

d. The cost of a consultant's report concerning the feasibility of the project that was completed (and paid for) in the previous year.

e. An increase in current assets (e.g., inventories) that would result if the project is undertaken.

Explanation / Answer

Dear Colleague,

The answer is option d) Cost of Consultant's report concerning feasibility of the completed project.

The reason is that first and foremost it concerns with the project that is already completed and does not convern with the new project. Also it is explicitly mentioned that the report fees were paid for in the previous year for the completed project. Thus the cash outfllow too has happened in the previous year with the completed project and cannot be considered as a relevant cash flow when determining incremental cash flows for a new project.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.