Which of the following should be included in the cash flow projections for a new product?
I.Money already spent for research and development of the new product
II.Capital expenditures for equipment to produce the new product
III.Increase in working capital needed to finance sales of the new product
IV.Interest expense on the loan used to finance the new product launch
A) II and III only
B) II and IV only
C) I,II,and III only
D) II,III,and IV only
E) I,II,III,and IV

Question

Quizplus · Accepted Answer

II and III are correct because capital expenditures for equipment and the increase in working capital needed are future cash flows directly associated with the production and sale of the new product. Money already spent on research and development is a sunk cost and not included in future cash flow projections. Interest expense is part of financing cash flows and not typically included in cash flow projections for a product.

Which of the Following Should Be Included in the Cash