Danielle's is a furniture store that is considering adding appliances to its offerings.Which of the following should be considered incremental cash flows of this project?
I.utilizing the credit offered by a supplier to purchase the appliance inventory
II.benefiting from increased furniture sales to appliance customers
III.borrowing money from a bank to fund the appliance project
IV.purchasing parts for inventory to handle any appliance repairs that might be necessary
A)I and II only
B)III and IV only
C)I, II, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

I and IV are both related to the incremental cash flows directly associated with the appliances (purchasing inventory and handling repairs), while II is an indirect benefit that may result from selling both furniture and appliances. III, on the other hand, is not directly related to the incremental cash flows associated with the new appliance project. It may be necessary to borrow money from a bank, but the interest and principal repayments would be considered financing costs, not incremental cash flows. Therefore, the best choice is C which includes I, II, and IV.

Danielle's Is a Furniture Store That Is Considering Adding Appliances