Which of the following should be incorporated into capital budgeting decisions?

Question

Which of the following should be incorporated into capital budgeting decisions? Select one O a. Sunk costs O b. Opportunity costs O c. Relevant externalities O d. Answers b and c O e. Answers a, b, and c Using the net Present Value method of analyzing a capital project, which of the following would make the project to look better? Select one: O a. Including the effect of federal tax rate reductions b. Using a higher discount rate Oc. Adjusting for the project's higher than average risk O d. Including terminal cash flows related to relocating key personnel Oe. None of the above would make the project attractive A firm with excess cash and few investment opportunities might logically choose to 8:55 PM 6/13/2018 5

Explanation / Answer

The correct choice is d

Explanation : - A sunk cost is an outlay that has already occurred, hence is not affected by the decision under consideration and hence should not be incorporated into capital budgeting decision.

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The correct choice is a

Explanation : - Net present value should be analyzed on an after tax basis as some non cash expenses such as depreciation can reduce taxable income.

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