Which of the following cash flows should not be included as incremental costs or revenues when evaluating capital projects?
A) A new security system will reduce shoplifting losses by $50,000 per year.
B) Thirty percent of the sales of a new product will result from customers switching from the previous version of the product.
C) Interest on construction loans will increase interest expense by $225,000 per year.
D) The project will occupy space which is currently being rented to another business for $3,000 per month.

Question

Quizplus · Accepted Answer

Interest on construction loans is considered a financing cost, not an incremental cash flow for capital budgeting purposes. Incremental cash flows should include only those cash flows that will change as a direct result of the project.

Which of the Following Cash Flows Should Not Be Included