The owner of The Haunted Bookshop, a retailer of used books, has determined that some of the hardback books he has in inventory will never be sold. He is considering using some of his
Creativity to convert these white elephants into items that might sell. He believes that with a
Few tools and some basic art supplies, he can create unique book ends and jewelry boxes from
These non-sellers during slow hours at the store. What are the relevant cash flows to be
Considered in deciding on this project?
A)the original cost of the books to him
B)the cost of the art supplies
C)the cost of the tools
D)both B and C

Question

Quizplus · Accepted Answer

The relevant cash flows to be considered in deciding on this project are the cost of the art supplies and tools (option B and C) since they are the only expenses incurred in creating the book ends and jewelry boxes. The original cost of the books (option A) is irrelevant to the decision since the books are already considered to be unsellable and have no resale value. The relevant cash flows to be considered in deciding on this project are the cost of the art supplies and the cost of the tools. The original cost of the books to him is not relevant in this decision because those costs have already been incurred and cannot be recovered. The costs of the art supplies and tools are the only costs that are incremental to the project and should be considered in determining whether the project is worth pursuing.

The Owner of the Haunted Bookshop, a Retailer of Used