Question

Which two of the following five statements are correct?

Select two alternatives:

• When we are certain regarding the input to a capital budgeting decision, it is often useful to determine the break-even level of that input.
• Project externalities are direct effects of the project that may increase of decrease the profits of other business activities of the firm.
• Sunk costs are incremental with respect to the current decision regarding the project and should be included in its analysis.
• When computing the incremental earnings of an investment decision, we should include all changes between the firm's earnings with the project versus firm's earnings without the project.
• Overhead expenses are associated with activities that are not directly attributable to a single business activity but instead affect many different areas of the corporation.

Answer 1

Ans: Below two statements are true:

1.When computing the incremental earnings of an investment decision, we should include all changes between the firm's earnings with the project versus firm's earnings without the project. A firm is required to evaluate how much extra income has been earned due to investment on a particular project. by this, it can also decide if it benificial to spend money on the project or not.

2.Overhead expenses are associated with activities that are not directly attributable to a single business activity but instead affect many different areas of the corporation.As overhead expenses comes in general expenses cetagory so it associate with different areas like staff salaries, Rent etc.