A company is considering purchasing new equipment. The equipment will allow the company to expand into a new product line. The equipment will be installed in the company's existing facility. Which of the following cash flows would NOT be relevant to the decision to acquire the new equipment?

Question

Quizplus · Accepted Answer

Factory rent allocated to the new product line is not a relevant cash flow in the decision to acquire the new equipment because it is a sunk cost and does not change regardless of whether the equipment is purchased or not. The other cash flows listed are relevant in the decision because they are directly impacted by the acquisition of the new equipment.

A Company Is Considering Purchasing New Equipment