Question

Which of the statements below is correct regarding capital budgeting analysis?

a. Interest expense is not included in project's projected cash flows because interest expense is not a cash flow; it is non-cash expense.

b. Money spent on researching and developing a potential new product should be included in the project's initial costs when it comes time to decide whether to launch the newly developed product.

c. An empty warehouse that is already owned by a company, and thus there is no monetary outlay to buy or rent it, must be included in project's projected costs if the warehouse will be used for the project.

Answer 1

interest expenses are not included in the cash flow statement of the company because they have already been included into the income calculation of the company so they are not recorded separately in the cash flows and interest expense is a non cash expense.

other statements are false because sunk cost are not recorded in cash flows and empty warehouse is like no additional cost, so they will also not be recorded.

Correct answer will be option (A)interest expense is not included in projected cash flows of a project because interest expense is a non cash expense.