The QT Company is generating cash flow of $333,000 per year. If they invest in a new press they expect to increase their cash flow to $400,000 per year. The cash outflow for the new press is $250,000; to accept or reject the investment they have to consider:
A) the press cost of $250,000 and total cash flow of $400,000.
B) the change in cash flow of $67,000 versus the price cost of $250,000.
C) the current cash flow of $333,000 and the price cost of $250,000.
D) the opportunity cost of the facility of $333,000.

Question

Quizplus · Accepted Answer

The correct answer is B because it considers the incremental cash flow ($67,000 increase from $333,000 to $400,000) that results from the investment compared to the cost of the investment ($250,000). This is the relevant comparison for making an investment decision.

The QT Company Is Generating Cash Flow of $333,000 Per