Which item should be considered when a company estimates the cash flows used to analyze a proposed project?
A)The new project is expected to reduce sales of one of the company's existing products by 5%.
B)Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost.
C)The company has spent and expensed $1 million on R&D associated with the new project.
D)The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year.

Question

Quizplus · Accepted Answer

Cannibalization effects, such as the reduction in sales of existing products due to the introduction of a new product, should be considered in the cash flow analysis of a proposed project.

Which Item Should Be Considered When a Company Estimates the Cash