Question

Which of the following is NOT a relevant cash flow and thus should NOT be reflected in the analysis of a capital budgeting project?a. Changes in net operating working capital.b. Shipping and installation costs for machinery acquired.c. Cannibalization effects.d. Opportunity costs.e. Sunk costs that have been expensed for tax purposes.

Answer 1

Answer:

The correct answer is letter "E":  Sunk costs that have been expensed for tax purposes.

Explanation:

Capital budgeting is a planning process used by companies to evaluate which large projects they will invest in and how to finance them. It is sometimes called "Investment Appraisal".  The type of projects experts analyze in capital budgeting include such major investments as building a new plant, buying new machinery, developing a new product, or buying another company, that is why option "E" is meaningless for this type of purpose.