When evaluating a new project, the firm should consider all of the following factors except:
A) Changes in working capital attributable to the project.
B) Previous expenditures associated with a market test to determine the feasibility of the project, if the expenditures have been expensed for tax purposes.
C) The current market value of any equipment to be replaced.
D) The resulting difference in depreciation expense if the project involves replacement.
E) All of the statements above should be considered.

Question

Quizplus · Accepted Answer

All of the factors listed should be considered when evaluating a new project, except for previous expenditures associated with a market test to determine the feasibility of the project, if the expenditures have been expensed for tax purposes. These expenditures are sunk costs and should not be taken into account when making a decision about whether to undertake the project.

When Evaluating a New Project, the Firm Should Consider All