When evaluating a new project,which statement should firms NOT include in the projected cash flows?
A)previous expenditures associated with a market test to determine the feasibility of the project provided those costs have been expensed for tax purposes
B)the value of a building owned by the firm that will be used for this project
C)a decline in the sales of an existing product provided that decline is directly attributable to this project
D)the salvage value of assets used for the project at the end of the project's life

Question

Quizplus · Accepted Answer

Previous expenditures, such as costs for a market test that have already been expensed for tax purposes, are sunk costs and should not be included in the projected cash flows of a new project. These costs have already occurred and cannot be recovered or changed by the decision to undertake the project.

When Evaluating a New Project,which Statement Should Firms NOT Include