Which of the following does NOT have incremental cash flow effects and thus should NOT be considered in capital budgeting decisions?
A)A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm's current products.
B)A firm must obtain new equipment for the project, and $1 million of costs for shipping and installing the new machinery will be required.
C)A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered if the new project is rejected.
D)A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm's other products.

Question

Quizplus · Accepted Answer

Sunk costs, such as the $2 million spent on R&D, are costs that have already been incurred and cannot be recovered. Therefore, they should not be considered in future capital budgeting decisions.

Which of the Following Does NOT Have Incremental Cash Flow