When evaluating a new project,firms should include in the projected cash flows all of the following EXCEPT:
A) Changes in net operating working capital attributable to the project.
B) Previous expenditures associated with a market test to determine the feasibility of the project,provided those costs have been expensed for tax purposes.
C) The value of a building owned by the firm that will be used for this project.
D) A decline in the sales of an existing product,provided that decline is directly attributable to this project.
E) The salvage value of assets used for the project that will be recovered at the end of the project's life.

Question

Quizplus · Accepted Answer

Previous expenditures such as costs associated with a market test that have already been expensed for tax purposes are considered sunk costs and should not be included in the projected cash flows of a new project. These costs have already occurred and cannot be recovered or changed by the decision to undertake or reject the project.

When Evaluating a New Project,firms Should Include in the Projected