Answer:
D) Both a and b.
- a. Revenues.
- b. Variable costs.
Explanation:
Project A Project B
Revenues: $360,000 $280,000
Variable costs: $210,000 $180,000
Fixed costs: $90,000 $90,000
When you are choosing a project, all the information the information is relevant since you must determine the cash flows. In this case, since both projects have the same fixed costs, then they are not as important when determining which project is more profitable.
We are not told how much does depreciation represent from the fixed costs, but cash flows are calculated by:
net cash flow = [(revenues - variable costs - fixed costs) x (1 - tax rate)] + depreciation
