Concepts used in cash flow estimation and risk analysis You can come across diff

Question

Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the initial investment in the new project? No, because the company will still be able to sell the warehouse once the project is complete. O Yes, because the firm could sell the warehouse if it didn't use it for the new project. No, because the cost of the warehouse is a sunk cost.

Explanation / Answer

The Acme manufacturing includes the value of the warehouse as because the firm coul sell the warehouse if it didn't use it for the new project. The correct answer is option (B).

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