Question

Collins Inc. is investigating whether to develop a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated?
a. The project will utilize some equipment the company currently owns but is not now using. A used equipment dealer has offered to buy the equipment.
b. The new product will cut into sales of some of the firm's other products.
c. The company has spent and expensed for tax purposes $3 million on research related to the new detergent. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future.
d. If the project is accepted, the company must invest $2 million in working capital. However, all of these funds will be recovered at the end of the project's life.
e. The company will produce the new product in a vacant building that was used to produce another product until last year. The building could be sold, leased to another company, or used in the future to produce another of the firm's products.

Answer 1

Answer:

The answer is a. The project will utilize some equipment the company currently owns but is not now using.

Explanation:

If you look at all the other options that are listed here, they either are a significant sum to the company or has a significant the opportunity cost. In this one, company uses idle assets and therefore bears no opportunity cost.