For the case of an electric car project, the following costs should be treated as incremental costs when deciding whether to go ahead with the project except
A)the consequent reduction in sales of the company's existing gasoline models (i.e., incidental effects).
B)interest payments on debt incurred to finance the project.
C)the value of tools that will be transferred to the project from the company's existing plants instead of being sold.
D)the expenditure on new plants and equipment.

Question

Quizplus · Accepted Answer

Interest payments on debt incurred to finance the project are considered financing costs, not incremental costs. Incremental costs are the additional costs directly resulting from the decision to pursue a project, such as costs for new plants and equipment, the value of tools transferred to the project, and the impact on sales of existing products. Financing costs are related to how the project is funded, not the direct costs of the project itself.

For the Case of an Electric Car Project, the Following