Which of the following would you not consider when making a capital budgeting decision?

Which of the following would you NOT consider when making a capital budgeting decision? a. the cost of a marketing study completed last year b. the change in direct labor expense due to the purchase of a new machine c. the opportunity to lease out a warehouse instead of using it to house a new production line d. the additional taxes a firm would have to pay in the next year

Answer

A option
  • capital budgeting decisions have an effect on the organisation for more than one financial decision
  • Cash flows are on an after-tax basis. A sunk cost is a cost that has already occurred, so it cannot be part of the incremental cash flows of a capital budgeting analysis. An opportunity cost is what wouldbe earned on the next-best use of the assets. Here, cost of marketing study is a sunk cost.

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