Question

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?

Group of answer choices

Revenues from an existing product would be lost as a result of customers switching to the new product.

Shipping and installation costs associated with a machine that would be used to produce the new product.

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.

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.

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.

Answer 1

The answer is

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.

The same is sunk cost since already incurred and hence, are not relevant

Revenue lost from product is an opportunity cost and hence, included

Shipping and Installation cost are incremental costs and hence, relevant

Land represents opportunity cost and hence, relevant

Space also represents opportunity cost and hence, relevant