Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?
A) Revenues from an existing product would be lost as a result of customers switching to the new product.
B) Shipping and installation costs associated with a machine that would be used to produce the new product.
C) The cost of a study relating to the market for the new product that was completed last year.The results of this research were positive, and they led to the tentative decision to go ahead with the new product.The cost of the research was incurred and expensed for tax purposes last year.
D) It is learned that land the company owns and would use for the new project, if it is accepted, could be sold to another firm.
E) Using some of the firm's high-quality factory floor space that is currently unused to produce the proposed new product.This space could be used for other products if it is not used for the project under consideration.

Question

Quizplus · Accepted Answer

The cost of a study that was completed last year and expensed for tax purposes cannot be considered incremental and should not be included in the capital budgeting analysis. It is a sunk cost and cannot be recovered. All other options (A, B, D, and E) involve cash flows that are incremental and should be included in the analysis.

Which One of the Following Would NOT Result in Incremental