Question

Which of the following occurs when a new project increases the sales and therefore the cash...

Which of the following occurs when a new project increases the sales and therefore the cash flows of an existing product?

Erosion

Sunk Costs

Opportunity Costs

Synergy

Which of the following method must be preferred if the number changes in the signs of future cash flows within the project’s economic life is more than one?

IRR

Payback Period

Discounted Payback Period

NPV

Which of the following does the estimation of the cash flows of a project depend on?

Revenues

Variable Costs

Fixed Costs

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Homework Answers

Answer #1

1.Synergy means when there is a combination of two factors to increase the overall value of the firm by increasing the cash flows and increasing the other benefits.

When a new project increases the sales and therefore increases the sales and also increases the cash flows of an existing product it would be termed as synergy.

It cannot be said that erosion and sunk cost or opportunity cost, are not the correct answer.

Correct answer would be option ( d) synergy.

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