Which of the following statements is most correct?
A) The rate of depreciation will often affect operating cash flows, even though depreciation is not a cash expense.
B) Corporations should fully account for sunk costs when making investment decisions.
C) Corporations should fully account for opportunity costs when making investment decisions.
D) All of the answers above are correct.
E) Answers a and c are correct.

Question

Quizplus · Accepted Answer

Statement A is correct because while depreciation is not a cash expense, it affects the value of assets and therefore can affect operating cash flows. Statement B is incorrect because sunk costs are costs that have already been incurred and are not recoverable, and should not be considered in investment decisions. Statement C is correct because opportunity costs are the benefits foregone by choosing one investment over another, and should be considered in investment decisions. Therefore, answers A and C are correct while B is incorrect, leading to the answer of E.

Which of the Following Statements Is Most Correct