Incremental cash flows
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?
Answer
A firm has a parcel of land that can be used for a new plant site or be sold, rented, or used for agricultural purposes.
A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm’s current products.
A firm must obtain new equipment for the project, and $1 million is required for shipping and installing the new machinery.
A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected.
A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm’s other products.
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